Ormat Technologies Inc (ORA) 2011 Q2 法說會逐字稿

Good morning. My name is Julianne and I will be your conference operator today. At this time I would like to welcome everyone to the Ormat Technologies second quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Rob Fink of KCSA Strategic Communications. Mr. Fink, please go ahead.

Thank you, Julianne. And thank you, everybody, for joining us. Hosting the call today are Dita Bronicki, CEO, Yoram Bronicki, President and COO, Joseph Tenne, CFO, and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.

Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements generally relate to the Company's plans, objectives and expectations for future operations and are based on management's current estimates and projections of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as described in the annual report on Form 10-K, filed with the SEC on February 28, 2011.

In addition, during this call, statements may include financial measures as defined as non-GAAP financial measures by the Securities and Exchange Commission, such as EBITDA and adjusted EBITDA. The presentation of financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP. Management of Ormat Technologies believes that adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurement and that both management and investors benefit from referring to this non-GAAP financial measure in assessing Ormat Technologies' liquidity, and when planning and forecasting future periods. This non-GAAP financial measure may also facilitate management's internal comparisons to the Company's historical liquidity.

Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the Company's website at ormat.com under the IR Events and Presentations link that's found on the Investor Relations tab. With all that said, I would like to turn the call over to Dita. Dita, the call is yours.

Thank you, Rob. Good morning, everyone, and thank you for joining us today for the presentation of our second quarter 2011 results and outlook for the near future. The second quarter was highlighted by strong results in the electricity segment where our revenue increased by 18% year over year and generation by 11%.

Operationally, we continued to focus on an efficient operation of our existing power plants. We also issued (inaudible) at North Brawley and execute on the large product segment order we received while continuing the activities for long term growth. Strategically we are seeing increased interest in business activity from key markets outside of the United States. I will go into greater detail on how we fuel this international growth later in the call, but before I do, Joseph will provide a financial review and Yoram will update on our operational progress. As usual, following my remarks, we will open the call up for Q&A. Let me now turn the call over to Joseph.

Thank you, Dita, and good morning everyone. Beginning at Slide 5, total revenues for the quarter ended June 30, 2011 were $104.6 million, an 8.7% increase over revenues of $96.3 million in the second quarter of 2010. In our electricity segment on Slide 6, revenues for the quarter were $81.2 million, an 18% increase over revenues of $68.8 million in the same quarter last year. The increase in revenues is the result of an 11% increase in total output and an increase in the average revenue rate from $78 per megawatt hour in the second quarter of 2010, to $83 per megawatt hour in the second quarter of this year.

In the product segment on the next slide, revenues for the quarter were $23.4 million, down from revenues of $27.5 million in the same quarter of 2010. In the second quarter we recognized $7.9 million relating to an experimental REG LNG plant in Spain which represents the amount received from the customer in July following the acceptance in the second quarter of 2011. Upon completion of final acceptance tests, the amount -- the customer will pay the remaining balance of approximately $8 million which will be recognized as revenues in the fourth quarter of 2011 or in 2012.

Moving to slide 8 which represents combined gross margin and gross margin for each segment for the quarter. The Company's combined gross margin for this quarter was 31.7% compared to 19.4% for the second quarter of 2010. The electricity segment's gross margin was 23.4% this quarter compared to 7.7% in the second quarter of last year and 15.8% in the first quarter of this year. Excluding North Brawley, the electricity segment gross margin would have been 32.3%.

In the product segment, gross margin was 60.5% compared to 48.6% in the second quarter last year. This increase is attributable to the $7.9 million in revenues relating to the experimental REG LNG plant with virtually no associated cost of revenues since the related costs have been included in research and development costs in previous periods. The increase is also attributable to a different product mix and different margins in the sales contracts.

Moving now to Slide 9, interest expense net for the quarter was $17.4 million compared to $9.4 million in the second quarter of 2010. The $8 million increase was principally due to an increase in the total amount of interest due to higher level of debt, and the $4 million loss on interest rate lock transactions in the second quarter of 2011. This loss is related to the proposed DOE loan guaranty transaction which was not accounted for in hedge transaction. We expect to incur an additional loss of $1.6 million from the interest rate lock for the second quarter -- for the second part of the hedge in the third quarter of this year.

Now, moving on to Slide 10, net income for the quarter was $8.2 million or $0.18 per share basic and diluted, compared to net loss of $1.5 million or $.03 per share for the same quarter in 2010. The increase is attributable to the increase in the gross margins of both electricity and product sales.

As shown in the following slide, Slide 11, adjusted EBITDA for the second quarter of 2011 was $47.7 million compared to $24 million in the same quarter of 2010. Adjusted EBITDA in the second quarter of 2010 included the Company's share in the interest and taxes, depreciation and amortization related to its unconsolidated interest in the Mammoth complex in California in the second quarter of 2010. That complex is now fully consolidated in the second quarter of 2011.

The reconciliation of GAAP to net cash provided by operating activities to adjusted EBITDA and additional cash flow information is set forth in Slide 26.

Moving on to the next slide, cash and cash equivalents and marketable securities as of June 30, 2011 were $67.4 million, down from $82.8 million as of December 31, 2010. The accompanying slides breakdown the use of cash during the first half of 2011. Our liquidity came from the issuance of senior unsecured bonds, the sale of OPC Class B membership units to JP Morgan, and cash derived from operating activities.

Our long term debt as of the end of the second quarter of 2011 and the payment schedule are presented in Slide 13 of this presentation. Slide 14 reflects our dividend policy and recent dividend declaration. On August 3, Ormat's Board of Directors approved payment of a quarterly dividend of $.04 per share pursuant to the Company's dividend policy which targets an annual payoff ratio of at least 20% of the Company's net income. The dividend will be paid on August 25th to shareholders of record as of the close of business on August 16th. The Company expects to pay a dividend of $.04 per share in the next quarter as well. This concludes my financial overview. I would like now to turn the call to Yoram for an operational update.

Thank you, Joseph, and good morning, everyone. Starting with Slide 16, as you have seen in Joseph's presentation, we had good results from our electricity segment, total generation increasing to approximately 980,000 megawatt hours in the quarter with good cost control. The Jersey Valley project is currently operating below its designed capacity. This is primarily due to the need to shut down one of the injection wells that was rendered unusable by old mining wells that we believe were not adequately plugged and abandoned.

We plan to drill additional wells and add injection capacity for the project. We have applied for the necessary permits and expect to receive such permits and complete the additional drilling by yearend. Due to the delay in reaching the design generation, we will need to get time extension from the PPA off-take.

There were no major advances in North Brawley since the previous call. We have been focusing on minimizing the operating expenses while we develop a plan to increase capacity of the plant. We did drill a production well that we expect to be successful and have increased revenues and reduced costs. For an update on our future growth, please turn to slide 17. In the table you can see the status and expected completion schedule for each project under construction.

In McGinnis Hills, we are progressing with the field development and power plant equipment is in transit to the site. We made progress in the acquisition of the required construction permits and the required environmental assessment is in process.

In Tuscarora we have completed the field development and physical construction of the power plant is in full swing.

As for the CD4 project, we have been working on permitting and expect to resume field development in the third quarter. As you can see in this slide, we changed the capacity to 30 megawatts. We still expect the total capacity from the repowering of Mammoth and CD4 to be between 65 and 70 megawatts. The change reflects our expectation to divert more megawatts into the rebar facility, but this may change as we continue the development.

In the Wild Rose prospect, which we formerly referred to as CH Wells, we drilled two wells in a prolific low temperature shallow reservoir to continue to explore the deep reservoir. We plan to release the power plant to construction upon completion of the resource evaluation.

We have continued drilling for Phase 3 of our Olkaria Plant in Kenya and the power plant equipment manufacturing is in progress. We originally planned to resume the development activity in the Carson Lake project in Nevada upon the receipt of an environmental impact study for the project. The approval of the required study is still pending and therefore there is no certainty that we can complete the project by 2013.

We have also started the process of terminating the old PPA for the project and will work to develop one that fits the new characteristics and timeline of the project.

On slide 18 you can see the detailed list of projects under development. In Wister the exploration progress so far suggests that we may not be eligible for the [9TC] cash grant. In Indonesia, the Sarulla project, we have reached a critical point in the negotiation with the off-taker, PLN, and the resource owner, PGE. The consortium continues its effort to reach agreement on the contractual amendments required for bankability. We hope to reach an agreement in the near term while there is still no certainly on the outcome of the negotiations.

We are in various stages of construction and development of eight projects that are expected to be completed by the end of 2013 and will contribute approximately 175 megawatts to our portfolio. In addition, we have approximately 130 megawatts in various stages of development.

Turning to Slide 19, in addition to projects under construction and development, we also have 32 sites in early exploration or activities yet to begin. This quarter we started drilling in two sites in the United States, and signed our first BOT agreement in New Zealand. Since the beginning of 2011, we have increased our land position by approximately 12,000 acres in Nevada, Oregon, California and New Zealand. In total, our land position for future development increased to 355,000 acres and an additional 264,000 acres under geothermal lease option issuance.

Let us now turn to Slide 20 for an update on the product segment. We successfully secured new EPC and equipment supply contracts. This quarter we were awarded one supply and one EPC contract which represent the largest product order in our company's history, and as of the end of the quarter, we have a backlog of approximately $225 million, which will positively impact our product segment revenues over the next two years. We were pleased with the increase in this segment. However, as described in the past, this segment is less predictable and tends to be cyclical.

I'd like to turn the call back over to Dita to address [this portion].

Thank you, Yoram. In my remarks I would like to review our capital position, provide the revenue guidance for 2011, and conclude with comments on the international business environment. You can see our capital requirements for 2011 on slide 22. In the remained of 2011, we intend to invest approximately $131 million in projects currently under construction as well as an additional $77 million for development, exploration, and other uses as detailed on this slide.

The CapEx requirement has been revised to reflect capital updates in projects under construction and development as mentioned by Yoram. The original budget included CapEx for the summer projects and the development in Israel and some exploration activities which are expected to be conducted beyond 2011, in part due to major delays in permitting. The original budget for the year also included the acquisition of certain land prospects that we decided to cancel, again, due to the anticipated permitting delays at that location.

The funding of these programs will come from cash on hand at the end of the second quarter, cash from operations, unused corporate lines of credit, project debt under the DOE land guarantee program, and cash grants.

Turning to slide 23, you can see our revenue forecast for 2011. We continue to expect the electricity segment revenues to be between $315 million and $325 million. And as we recently updated, $90 million to $100 million for the product segment. With that, let me look beyond 2013. Let me take a few minutes to discuss international markets [under] development and our activities in this market. Opportunities in markets outside of the United States have provided Ormat with projects in (inaudible) [and also a goal in gasification]. At the recent inauguration of the Ormat Las Pailas Power Plant, Costa Rica's Minister of Energy, Mr. Teofilo de La Torre, explained the uniqueness of geothermal energy. And I quote, a [rough translation] of one passage from his speech. "The 35 megawatts of geothermal (inaudible) supplied by (inaudible) to the nations (inaudible) is equivalent to 90 megawatts of (inaudible) or 120 megawatts of wind. Last year, the 6% of this geothermal capacity satisfied (inaudible) of the area's energy needs". End of quote.

This is advantage of geothermal energy technology compared to other (inaudible) resources.

The other (inaudible) geothermal development is improving internationally. We saw examples of substantial new geothermal power plant construction in New Zealand and Kenya's investment in geothermal development as well as Chile's geothermal activities. Japan (inaudible) the Fukushima disaster, there is new geothermal development in Japan.

From our earliest project (inaudible) to date, we have positioned Ormat with a diversified portfolio of geothermal assets in a responsible approach to managing [our goal]. On the macro level, the fundamentals for geothermal energy remain excellent and we plan to continue to develop projects and plans in diversified geographies for 2013 and beyond as our commitment to the renewable industry and in geothermal is long term.

We thank you for your support and at this time I would like to open the call for questions. Operator?

(Operator Instructions). Ben Kallo, Baird.

Hi, good morning. Could you guys update us on what the production level of Brawley is? And then remind us what the treatment is if you have to write that asset down, how you make that decision?

I think the average production for the second quarter was around 26 megawatts. What I think that we described in our last earnings call, our plan for this quarter and the next few quarters is not to run the facility at the demonstrated 33 megawatts or close to that which is what it was tested at the end of the first quarter, but basically run the better running equipment or the better running wells so that we can reduce the margin between revenue and costs and reduce the drag on our ongoing EBITDA while we develop the plan that will allow us to have all of our wells be good wells and bring the plant back to capacity. And at the current stage there are no ramifications to running anywhere between 33 megawatts and what we run today and it's just an economical decision or a short term economical decision not to lose money on marginal wells.

Okay, good. On Sarulla, I know a lot of people have been reading some stories out there that the utility might take that project from the Medco Consortium, although it seems like in your presentation you guys don't take that view. Could you just talk about that for a second?

Not exactly, Ben. The utility is threatening to take that project back if we are not going to reach acceptable solution shortly. What it is shortly I don't know, so I can't tell you if it is a month or if it is, whatever it is. But the threat is there, that's the reality. We are still negotiating and hoping to get to a resolution, but there is no certainty.

Okay, then my last question is on your LNG REG, could you just remind us how much you guys spend in R&D on that? And then have you -- what are you expecting for the future as far as rolling that product out into other, if you could sell that to other applications. Thank you.

The R&D, I don't have the exact number, but it's on the order of $20 million. That may not be accurate, but just to give you an order of magnitude. We believe that the demonstration of the solution in this project may open up additional applications for REG in LNG [gasification] plants. It is told that the low shale gas prices in the United States have delayed plans for LNG gasification plants in the United States, but in other locations in the world there is still potential for that application. I believe it's smaller than what we thought before we discovered the shale gas, but still substantial business opportunity if it materializes.

Great. Thank you.

Dan Mannes, Avondale.

Good morning, and nice quarter. A couple of follow up questions. First, on North Brawley, it did look like you were pretty effective at managing costs sequentially. How much of that is due to reduced costs on the pump replacement versus sort of other things? And any way to think through what it's going to take even at 26 megawatts to get to breakeven?

I think pump replacement is clearly a -- was a factor. We did a lot of work in the first quarter. It's not only true for Brawley, it's actually true across our fleet. So there was a lot of work that was done in the first quarter when rates are typically lower and lost generation due to maintenance is not that important and therefore we were able to maximize generation across our fleet in the second quarter and we hope that would be true for the third quarter as well. So this is a general comment, also true for Brawley, a lot of the well field work was already done.

We see some improvement in ops. We expect this improvement to continue and I think that that would bring us to -- I'm not sure whether the breakeven would be at 26 megawatt or not, but I'm fairly confident that the same -- that we will not see the same drag on EBITDA coming out of Brawley that we have had in 2010 or early in the first quarter of 2011. Where exactly would that be is hard to tell, but since we know how to operate 15 megawatt plants efficiently and 10 megawatt plants efficiently and we have a whole fleet of [board units] that are 45.5 megawatts and each of them is operated efficiently, there's really no reason not to find a breakeven point at any form of generation. Of course this is not the outcome that we would like. We have built a 50 megawatt facility and we would like to get there, but it has a balance point. We could find the balance point actually at any generation level, if you'd like.

Got it. Real quick, any update on the process of the loan guarantee? We've seen a lot of the environmental assessment documents were out there and it looked like that was getting pretty close to completion on the three Nevada projects. I was wondering if you could just sort of walk us through what steps are left before you can substantially close that.

We're very close, but you know the timing is short. We believe that we will close it. We are in the final documentation preparation. The (inaudible) 30 days before funding can occur, final documents have to be submitted to the DOE and other government entities. We believe that we can achieve the 30-day period in time for closing, but it is close.

Is the deadline September 1 or September 30?

30. September 30.

So the documents need to get to them basically by the end of September -- by the end of August?

By the end of August, right.

We'll keep our fingers crossed.

You know, Dan, as you say we keep our fingers crossed, I think it's important to mention that the market is available today for construction financing that can replace the DOE loan guarantee program at a cost which is not substantially higher. We are not pursuing it because still the DOE program is more attractive, but the market is available, I think it's important to understand this.

Okay, so you have a solid backstop in case the DOE doesn't go through.

Yes.

Real quick, you guys put out a release earlier this week about some evaporative cooling that you had put in place at Steamboat. I was wondering if you can quantify for us maybe what sort of opportunity that created there and how you see that playing out, i.e., where else could you put it in your system and/or does this give you opportunities in terms of product sales?

So I think in the press release we quantified -- hopefully I'm not off, but there is about 160 megawatt of existing capacity in our fleet that could benefit from that evaporative cooling or enhance their cooling needs. And I think that around 60 -- actually probably 90 megawatts of additional construction that -- in our current plan that we know is being built in areas where such enhanced air cooling would work well.

00 to 6:00, 12:00 PM to 6:00 PM. And in an air cooled geothermal facility, the output can drop to 50% or 60% of the nominal capacity at that time and we can recover between 50% and 70% of that loss. So very substantial.

Now if the tariff is a flat tariff, then it's only additional megawatt hours. It's very nice but it's not dramatic. If you get a time of use type of adjustment, then these additional megawatt hours are very cost effective and it's really -- say that we've added 25% to our output at tat place, so we've added 4 megawatt to [Galina I's] generation at that time. This is as if we had added a 4 megawatt area of [putable takes] really to the plant. This is the equivalent. So where time of year is applied or where the utility is open to open up the PPAs rate to reflect the fact that they get this boost during those hours, this is very substantial.

The first step is of course to prove the technology and we feel that we have done a lot in terms of proving the technology. And the second step would be to find commercial agreements that would allow both the off-taker and Ormat to benefit from this boost during the hours where energy is the most sought after.

I'm sorry, just the last piece on that is, how meaningful is internal CapEx to put this in place either as a retrofit or on a new build relative to the traditional air cooling?

Not very expensive at all. There are design issues, there are (inaudible) issues, but this is an easy retrofit and in most cases could go into an old facility just like it is implemented in new construction in a much more attractive solution from a CapEx perspective than building a water cooled facility.

Got it. Thanks for all the color.

Paul Clegg, Mizuho.

Hi. Thanks for taking my question. Are you considering asset sales as part of your liquidity plans to fund growth? And if you are, can you talk about how you would view your assets as which ones are core versus noncore?

We are not. We don't think we have liquidity issues. We think that the market is open for consolidation and we don't see any need.

Okay, that's very clear. And then there's obviously been a lot of press reports about your discussions with third parties to buy 20% stake in Ormat Industries. Can you run through the potential options available to you given the debt maturity schedule that you face there and what sort of implications it could have for board composition and things like that?

The potential is generally expand the loan and we have the possibility to expand the loan, I'm not sure we will choose it, but the possibility exists. And the other alternative is to sell part of our stake of, of the family stake in the Company. The family stake to be sold can vary between 20% as well as (inaudible) whatever. This would mean certainly a replacement of some of the directors, especially in the parent company, in Ormat Industries, by other entities of the of the potential buyer. It's still too early to say what will happen, but these are the alternatives.

Okay, and then if I may, just one follow up on Jersey Valley. If you could talk about how much of an operational -- how much sequential pressure did you see n terms of operating profit in the second quarter as a result of the issues at Jersey Valley? And is that something that you expect to continue in 3Q? Would it be larger in 3Q?

No, we don't -- the impact to Jersey Valley is minimal on EBITDA. It's a very, it's a modern facility, air cooled facility with design to run unattended. Simple well fed operation and therefore no substantial cost. Of course we would like to see profit out of it and to get to profit we need to bring capacity up, but it's not an issue. It runs on its own.

Thank you.

Peter Christiansen, Bank of America Merrill Lynch.

Good morning, this is Peter in for Steve Mulanovich, thanks for taking my question. I was wondering if you can elaborate as to the situation with the Nevada PUC? It looks like it denied or did not approve Dixie Meadow PPA. And whether that is something that's more structural or technical and does that increase any risk for some of the projects, the 15 other projects that you have in Nevada?

I think it is true that the Dixie PPA was not approved at that time, but really the PUC did not approve any of the PPAs, so what happened there is not an Ormat/NV Energy issue, it's more the mechanics of NV Energy and the PUC. And I think that this is -- we hope that everybody can identify Dixie Meadows is a good PPA that would work well for the state and all the parties involved. But it's really at this point, it's only Dixie Meadows PPA that is affected by that and we don't see this affecting all of our other PPAs.

Thank you. And as for the improvement in the fleet, across the board it looks like availability on a year over year basis jumped maybe 200 basis points. Should we expect that incremental improvement to be fairly consistent for the next few quarters on a year over year basis?

As far as we can tell today, we have high expectations for the third quarter and for the fourth quarter. The issues with availability is that it is -- typically, it typically hurts you when a big piece of equipment unexpectedly breaks down and therefore it's hard to forecast. So our expectation is for good results through the rest of the year, but obviously things can happen.

What I can answer on a more global, from a more global perspective to our fleet, we did start off with a lot of older units and small units that tend to break down and are hard to keep. And over the years we have modernized a lot of our fleet, a lot of the equipment that has been brought on, and a lot of the additional megawatts are from new equipment that has a much longer, much better availability if you like.

And so I think that part of this is doing the right maintenance at the right time. Part of this is having good equipment or better equipment installed that we have been doing. And part of this is just enjoying some good fortune, having either no tropical storms or having the tropical storms hit somewhere else and not one of our facilities. And the same with volcanic eruptions and so on. So a little bit of everything.

Great. Then finally, Dita, I was wondering if you could just elaborate a bit more on some of the -- characterize some of the issues with the amendments as it pertains to Sarulla that are holding up the process. Is it financing related? Timing related? Or possibly new questions about the actual rate?

They are all financing related. The rate was, a revised rate was agreed in April of last year, so the rate -- I mean it was -- during the years of the solar negotiation, the rates, they used to be an issue, but it was finalized last year. So no, it's not the rate, it's all what we call bankability. Financing issues which result from the requirement of JBIC, the Japanese Bank, the Expo Bank that is intended for the financing of the project. They imposed, it's a security package for the final thing mainly because of the financial weakness of the resource over there. Initially when we signed this agreement, the resource owner was (inaudible), the Indonesian oil and gas company. During the process, (inaudible) has assigned the ownership and the (inaudible) to the [oil field] agreement to a subsidiary which is called PGE and the current wealthiness of that subsidiary doesn't satisfy JBIC without additional enhanced security. And the issues are over this enhanced security that JBIC is requesting. And until now we were not able to get.

Thank you, that's great color.

Dilip Warrier, Stifel Nicolaus.

Good morning. I was wondering if you could provide us with a sort of outlook on GAAP income taxes. It looks like a pretty big swing factor in terms of you posting positive or negative EPS.

The calculation of the taxes you know is according to APB28. And I think these two quarters are not very representative because the net impact of the two quarters is a small loss in the first half of the year. So any result of the effective tax rate, a small result, is not material. We have anticipated and we told it in the first quarter 10-Q that we anticipate a tax benefit during the year. And taking that into account and adding (inaudible) that we had in first quarter resulting from new legislation, tax legislation in foreign countries, brought us to a tax expense in Q1 and a tax benefit in Q2.

I believe you should assume for the rest of the year a very low tax rate on our results, but it depends on the actual results that we have in the next two quarters. It's done based on projections which can change.

Okay, and you're still expecting full year EPS profitability, yes?

Ah, EPS, yes, sure.

And just one more question here. So the product gross margin has again been kind of lumpy and I was just wondering if the long term guidance is still that low 20s kind of range?

Yes, you can assume it for the long run. Take into account this year we had the LNG project which did not have any associated costs, so I believe that in the long run you can still be with that number, I think it's reasonable.

JinMing Liu, Ardour Capital.

Good morning. My first question relates to your LNG project. Before you were expecting the full shipment of $50 million to be recognized in the first half this year. But somehow this got pushed back. Can you clarify that?

Yes. The structure of the contract is one that we have our scope, which is building the facility. But the facility is built in an existing terminal which basically put some of the scope of the work, or a substantial amount of the scope, on the customer for the plant. And for various reasons, the customer did not complete all the items that he needed to complete and therefore the plant could not be started up. So the payment, as Joseph described, the payment that we have received to date is one that reflects the fact that we have done everything that was in our powers to do.

But the plant is not running yet, fully constructed, but not running. And the balance of the payment will be made once the customer is ready to complete or once the customer has completed all that he is supposed to do which of course is not in our control

Okay. My second question is related to your Sarulla project. I noticed that recently the World Bank awarded a loan to one of your partners over there for other geothermal projects. Whether that action will have -- my question is whether that will have any implication on your projects over there?

Certainly not directly. The World Bank has awarded a credit to [PLN], to the utility in Indonesia. So this one project the utility owns, but certainly it gives the ability, the courage to threaten that they will take over the project. The fact that they have access to capital like the World Bank capital. But not a direct relationship to our project.

Okay, thanks a lot.

Elaine Kwei, Jefferies.

Hi. Most of my questions have been asked, but just real quick on the product side, excluding the LNG revenue there, it looks like margins would have still been around the 40% level. And I was just wondering how we should think about this going forward in relation to the $225 million of backlog that you have. Is this sort of a new run rate going forward or were there some other sort of one time items in there? Thank you.

As I told before, there are fluctuations in the gross margin from quarter to quarter because of the mix of the orders and for profitability of each of them. I think in the long run, and you shouldn't take a quarter as an example, on the long run you should expect what I said before, over 20% gross margin on the long run.

Adam Wiseman, Luminous.

All my questions have been answered. Thanks.

Mark Barnett, Morningstar.

Good morning. Just two quick questions. I don't think I heard clearly on the Jersey Valley issue. With the off-taker, you mentioned something about the extension but I just missed it. I was wondering if you could clarify that point.

Yes, we need to -- there was a contractual commercial operation date. Obviously we can't meet that without resolving the injection well issue and therefore we need to agree with our off-taker on extending that date. And since the issues are really not within our control, we're not responsible for the old mining activity that was done there. We think that we can find a way with our off-taker to make this as (inaudible) as possible.

Do you think that you'll be able to maybe finalize that extension in the next quarter or two or is it going to be a longer process?

We hope this can be a quick process, yes.

Okay, and one more quick question on your projects under construction for the new Wild Rose, formerly DH12. The capacity, the range has shrunk a little bit, now 15 to 20. And I was just wondering what was driving that, if you just encountered sort of a different resource than you were expecting or --

Yes, as we mentioned, we have identified a very prolific, shallow, low temperature resource and that could, in our -- based on everything, all the studies that we have done so far, this can be a very nice project, economically viable and so on. However, if you do produce low temperature fluids, it takes a much higher flow rate for any megawatt to do time to produce. And therefore exceeding 15 or 20 megawatts would mean a very, very large well field development and based on our experience in other places, we would like to stay away from developing such a large well field in one phase. And therefore the first phase, if we do stick to the low temperature resource, the first phase would be a smaller phase.

As we mentioned, we are still continuing the exploration. We know that there is hotter temperature at depth. If we can identify a large enough reservoir at the higher temperature, then again, we would develop a project that produces about the same amount of fluid as the first phase. But because it's a hotter fluid, it could be back - the range can go back up and it could be a bigger plant.

Ben Kallo.

Hey, guys, thanks for taking my follow-up. I know that construction loans, like you said Dita, are available. But have you guys had any -- have you guys had to curtail any development or exploration because of your liquidity situation? And how do you look at that going forward? Where you place your money as you're doing your exploration and your initial drilling out there?

The answer, Ben, is no, we did not have to curtail a development because of liquidity. The delays that you are seeing in the CapEx spend numbers through the end of the year are mainly what is called (inaudible). This is the main reason. I don't know if you have heard it from other companies that you cover, but in the recent years, the environmental agencies, whoever they are, are really sensitive to this nice little world and they impose a lot of difficulties in development in areas where the they have the habitat of the (inaudible). And most of our projects have been (inaudible) habitat and that's the reason for the delay. We do not think that we will have any difficulty once we have the fundamentals of the project for financeable projects in place which means (inaudible) and resource. These are the two things which are delaying geothermal development in the case of Ormat. We don't think we have any difficulty to get construction loans.

Paul Clegg.

Hi, thanks also for taking the follow up. Again on North Brawley, should we expect to see any more spending on pumps or remediation during the year? What I'm trying to understand I guess is how you get the facility above 33 megawatts without spending more in the near term. And then if you could say how much you spent on pumps if at all this quarter.

The answer is to get the facility above 33 megawatts we would have to put in more CapEx. And as I think we described in the previous quarter, it's really drilling more production wells, or drilling more injection wells depending on how we end up developing the balance of the field. So there will be an impact in the capital program, but you would not see this in EBITDA and of course the impact of depreciation is spread over a longer period of time. So I think that this is the answer to your first question.

The answer on pumps, there is a steady consumption of pumps in all of our pump geothermal projects. And so we should expect this to continue and affect Brawley just like it affects Steamboat or Mammoth or Heber. The challenge that we have in Brawley is that we really want to get our pumps closer to a two year life span, a year and a half to two year lifespan. Which is what we see in some of our projects in the Imperial Valley. And this would have, this would both increase availability of the well field and reduce costs and we don't see why this cannot be accomplished. It's a matter of designing the pumps or the pump assembly a little better or in a more, in a way that is more adaptive to the conditions of the Brawley resource. And we think that we'll get there over time and over time is not the very distant future, but something that will happen in the next few quarters.

Okay, but that additional CapEx on Brawley is in your CapEx guidance as in the presentation?

Yes, correct.

Peter Christiansen.

I'm sorry, I had it on mute. Thanks for taking a quick follow up here. I was just wondering what capitalized interest was for the quarter and how you perceive that going for the remainder of the year?

It was $2.9 million in the quarter, in this quarter. And going forward, it depends on the CapEx -- it will increase until we place in service McGinnis and Tuscarora and it depends on our CapEx plan for 2012, but it will increase during this year.

Tim Arcuri, Citi.

Hi, it's Tim. I just wanted to ask with regard to Jersey Valley if there is a -- I guess what is the process, does there have to be a reapplication to the PUC for this PPA here or what is the process there? And maybe if you can give any flavor as to what the outlook is for PPA prices?

For the PPA of Jersey Valley?

Or just in general for PPA prices. Are they steady? Going lower? Going higher?

Well I don't see how this relates to Jersey Valley. I think that PPA price is really something that, if you'd like, it's very infrequent in the sense that I think the current -- the RFP, the last RFP that was issued by NV Energy is probably a year old. So there's not great data points, or not too many data points around this, but this does not affect Jersey Valley.

Okay, then maybe if I could just ask one more question, a follow up on Dixie Meadow, if you could give any -- what was the -- can you give any color on the reasoning why the PUC didn't approve the PPA?

The PUC did not approve any of the PPAs that were in NV Energy's program. It did not specifically address -- there's not a lot to write about our PPA from that. And I think that it's really not our place to comment on what happened between NV Energy and the PUC. There are -- we're not really, we're an effective party, but we're not a party to that discussion.

Ladies and gentlemen, this does conclude the Q&A portion of today's conference call. I'll turn the floor back over to management for any further comments.

No comments, but thank you for your interest and questions and we look forward to continued dialogue with you all. Thank you.

Thank you all for participating in today's conference call. You may now disconnect.