Polaris Infrastructure Inc

TSX:PIF

Earnings Call Transcript 2018-Q1

[Operator]

Good morning. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Infrastructure 2018 First Quarter Results Conference Call. [Operator Instructions] Mr. Downey, you may begin your conference.

[Shane Downey, Chief Financial Officer]

Thank you, Cheryl. Good morning, ladies and gentlemen. Welcome to the 2018 First Quarter Earnings Call for Polaris Infrastructure. In addition to the press release issued yesterday, May 8, 2018, you can find our financial statements and MD&A on both SEDAR and our website at polarisinfrastructure.com. Unless noted otherwise, all dollar amounts referred to are denominated in U.S. dollars. I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Infrastructure Inc. and its subsidiaries. These statements are current expectations and, as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's Annual Information Form for the year ended December 31, 2017. Certain measures referenced in this call do not have any standardized meaning as prescribed by International Financial Reporting Standards, and therefore, are considered non-GAAP measures. In the company's earnings releases, consolidated financial statements and MD&A, unless otherwise noted, all financial information is prepared in accordance with IFRS.EBITDA is a non-GAAP metric used by many investors to compare companies on the basis of ability to generate cash from operations. The company uses adjusted EBITDA to assess its operating performance without the effects of, as applicable, current and deferred tax expense, finance costs, interest income, other gains and losses, impairment loss, depreciation and amortization of plant assets, share-based compensation and other nonrecurring items. The company adjusts for these factors as they may be non-cash, unusual in nature and are not factors used by management for evaluating the performance of the company. The company believes the presentation of this measure will enhance investors' understanding of its operating performance.I am joined this morning by Marc Murnaghan, Chief Executive Officer of Polaris Infrastructure. At this time, I will walk through our Q1 2018 financial results and comment on our recently announced quarterly dividend, after which, I will turn the call to Marc for additional commentary with respect to San Jacinto operations, the conclusion of the 2017/'18 drilling program and to accept any questions. As mentioned previously, I refer our listeners to the company's recently filed financial statements and MD&A for the quarter ended March 31, 2018, for a more complete presentation and discussion of the company's financial position and results of operations. During the first quarter of 2018, San Jacinto operations delivered 116 gigawatt hours net, an average of 53.9 (sic) [ 53.0 ] megawatts net versus delivery of 109 gigawatt hours in the prior year period. As expected, there was an impact on Q1 production due to the planned maintenance of the unit 3 turbine. This resulted in approximately 2.5 weeks of downtime, significantly reducing our generating capacity for the quarter. The San Jacinto plant otherwise operated at approximately 59 megawatts net, meaning that downtime for turbine maintenance cost us approximately 5 megawatts to 5.5 megawatts on a quarterly basis, and approximately 1.3 megawatts when annualized. Relative to the prior year period, the first year -- the first quarter of 2018 benefited from incremental steam flows from the partial connection of SJ 12-5, as well as a shorter downtime period associated with the turbine overhaul. Given this level of generation, we recognized $14.7 million in revenue, up from $13.4 million in the prior year period. The 10% quarter-over-quarter increase in revenue was driven by the combination of the increase in generation as well as the 3% annual increase in tariff under our PPA. Given revenue growth combined with ongoing cost containment, the company generated adjusted EBITDA in Q1, 2018, of $12.3 million versus $10.9 million in the prior year period. The company reported net earnings in the quarter of $0.5 million versus a loss of $1.2 million in the prior year. As at March 31, the company had a cash balance of $34.8 million, of which $12.5 million was held in debt service reserve accounts related to the San Jacinto project. Operationally, we very recently completed the commissioning of new separator station on pad 12 which then allowed the connection to the San Jacinto plant of all recently drilled wells. Accordingly, we anticipate improved average generation levels for the balance of 2018, which will drive increased revenue with nominal cost increases. And finally, before turning things over to Marc, some comments with respect to our latest quarterly dividend, which was declared by the Board of Directors yesterday, May 8, and will be paid on May 28 to shareholders of record on May 16. The $0.15 dividend reflects a 54% payout ratio based on Q1 results, and when adjusted for the estimated impact of downtime for turbine maintenance, we estimate the payout ratio at 41%. We have always envisioned dividend growth to come firstly from growth in cash flow generation and secondly, from a possible increase in payout ratio. This philosophy continues to hold true, particularly in light of new production wells that have recently come online and will begin driving incremental cash flow generation later this year. With that, I will turn the call over to Marc.

[Marc Murnaghan, Chief Executive Officer and Director]

Thanks, Shane. So I'll just give a real high-level overview of where I think we're at, and we can open up for questions real quickly. So as we mentioned in the press release, we said we get a range of 70 to 75 megawatts growth which is where we're at now, this morning we're right around 73 megawatts. We have 2 wells actually offline. So 12-4, which is the latter -- sorry, the second well drilled as part of the recent program. So that is shut in, and -- as is 9-3, which is shut in that -- people may recall, that's the well that we have that is around, call it, 4.5 megawatts, 5 megawatts. But that's the one that cycles a fair amount unpredictably. And so it's better to keep that one offline if you're sort of, call it, throughput constrained as opposed to steam constrained. So right now, I would say we are, call it, 3 megawatts to 4 megawatts throughput constrained still. We're very happy with where we're at right now, given that we have a couple of wells shut in and we're producing at around the 73-megawatt level. We are going to try to improve that in the next little bit here. The old separator that we just replaced, HPS3, was not only, sort of, at capacity, but it also was somewhat inefficient. And what that means is that you get, what they call, brine carryover in your steam, so the separation isn't effectively 100%. And what that can do is it can cause scaling on your turbines, which is one of the reasons that we always do maintenance on each turbine. So the -- in all likelihood, there's scaling on Unit 4, which is a turbine that's running a little bit below capacity. So we are scheduled to do full maintenance of that next February. We think we're running, call it, 3 megawatts to 4 megawatts below theoretical capacity. I think we can get 2 megawatts to 3 megawatts of that by just -- what we do is, while we're still running, which we are doing right now, is we are washing the turbine, where we actually inject some water into it and it removes some scaling. It can't remove all of it, but it can remove an amount. And so we're doing that now and we'll do that through the rest of May. And then at the end of May, we'll see where we're at and how much of the delta we get between, call it, 73 megawatts and -- I put -- we put in the press release, sort of 77 megawatts as the nameplate. I think given that we do turbine maintenance on each turbine sort of every other year, while it's theoretically possible that we can spend some time at the 77 megawatts gross, which is the nameplate, I think that's a little bit unrealistic. It's probably more like 75 megawatts or 76 megawatts, because you're always going to have 1 turbine that's more than a year away from when it's -- when you've done maintenance. So -- and the reality is we don't know exactly because this plant has never truly had enough steam to operate at that level. So we'll be learning as we go here a little bit. But I think we're down to -- talking about 1, 2, 3 megawatts. So if -- that's where we're at. I think we'll know more in the next 3 weeks as to what we can get to, call it, before next February. And if we thought we were still, let's say, the math works out to if we think that we're, let's say, 2 megawatts, 2 or more, 2 megawatts to 3 megawatts away from what we could actually get to if we did a real thorough cleaning of the turbines, we could take Unit 4 down for 5 to 10 days, do a thorough, call it, a mini maintenance to gain those sort of 2 to 3. But we won't know that probably for another month here. So that's the real update. We -- other than finishing HPS3, which we did do about a day ahead of a schedule, we don't really have any major works planned at San Jacinto for the rest of the year. We will see how it behaves. I will make a comment that 12-5, which is online now, has actually been online since February 28. So we're, call it, 6 weeks in. We think it's producing in the 10, 11 megawatt range, albeit, it's restricted. So we don't have it fully open yet. So -- but again, it's a bit early to call that as to where that's going to end up. But we're very happy with the fact that, at least in the first sort of 6 weeks here, we haven't really seen any changes in its behavior in terms of a, call it, an oil and gas like decline. It's been quite steady where it is. So we're very happy with that, call it, 10, 11 megawatts. So that's it for my formal remarks and let's open it up for questions.

[Operator]

[Operator Instructions] Our first question comes from David Galison from Canaccord.

[David Galison]

So I guess, you said you're operating around 73 megawatts gross right now. I know there's a lot of things that are kind of moving around. What do you sort of anticipate from a net basis, based on what you're seeing right now?

[Marc Murnaghan, Chief Executive Officer and Director]

Just subtract 5 off that. That's -- the gross to net is always -- that's a fixed number.

[David Galison]

Okay, and...

[Marc Murnaghan, Chief Executive Officer and Director]

Well, sorry, I shouldn't say that. It's fixed per turbine which is 2.5 megawatts per turbine.

[David Galison]

And then, so for next year, you would roughly estimate that same amount plus maybe some downtime -- additional downtime in February for the turbine maintenance?

[Marc Murnaghan, Chief Executive Officer and Director]

Well no, we always have downtime in February for maintenance.

[David Galison]

Okay. Right.

[Marc Murnaghan, Chief Executive Officer and Director]

Always. We do it in February. It doesn't have to be February, but we will take 1 turbine down for, call it, 2.5 to 3 weeks every year. So there will always be planned downtime of that magnitude. Our only debate now is if -- whether we wait until then to do it or, if it makes sense, to try to gain an extra, let's say, 2 megawatts, if we do, call it, a mini downtime, which we wouldn't do until July or August anyways.

[David Galison]

And then, so some of the operational adjustments that you're looking to make, can you give a bit of color on what they are and kind of how long you think it'll take to work through all of them?

[Marc Murnaghan, Chief Executive Officer and Director]

The operational adjustment, it's not -- that's probably the wrong wording. I would say it's just cleaning your turbine. That's it.

[David Galison]

Oh, that's it. Okay.

[Marc Murnaghan, Chief Executive Officer and Director]

So that's it. Yes, so there's always going to be some level of scaling. I think -- and what we're going to try to do is get people maybe away from the capacity number. Because what's more important is your delivered megawatts hours in the end. And the reason I say that, for instance, we have 9-3 offline now. We could maybe put it online. We would have to take another well off, but we think we can increment the -- when you look at any time, you might see an extra megawatt. But that's a variable well and we think net we'll sort of do. So we're going to start trying to get people more on what we think we can deliver in terms of the megawatt/gigawatt hour basis. But the only thing is when you take these units out of the maintenance, there's -- effectively, they're clean as a whistle and they will operate at their nameplate capacity. You can't expect it to operate at that named capacity for the full 2 years though. And we just -- so we'll give some guidance as to where we think that is, but I think it's -- a realistic number is more, start with, call it, 75, 76 and then run your numbers from there. And then you still need to take off the 2 to 3 weeks of maintenance. And there is always going to be some unplanned downtime. And so, we've been running -- that unplanned downtime has been quite low. I think our unplanned downtime is less than 0.5%. But -- and I'm talking outside of the major -- that major maintenance period is sort of -- that's an easy one to do. And then it's outside of that, what's your -- even some planned and unplanned. But I think you want to be running that at -- for numbers around 97.5%. Even though like we've been doing better than that, but I think if you asked around, that's not a bad number to use in terms of availability, right?

[David Galison]

Okay. So this may be theoretical, but once you -- as you work through everything and you have -- once all the wells are able to be up and running, do you anticipate a net potential of being above -- at 72 or above going forward or...

[Marc Murnaghan, Chief Executive Officer and Director]

Yes, so I think, again, it's too early. Like if we take the 2 wells that we have offline right now, they would add up to -- now 12-4, we've only run it for -- because that's a new well, right? So I feel like saying that that 4 to 5 is a safe bet. Because this field tends to -- the big wells tend to have some decline in the first year. The ones that are anything below sort of 6 megawatts tend to start there and stay there. So I think if you take that and 9-3, you're close to 10 megawatts, okay? So that's 9 to 10 megawatts between those 2 wells. So that would put our gross at the low 80s, right. We can't get there with the 2 -- these 2 turbines. So that would say that we've got anywhere from 3, 4, 5 megawatts of excess steam. And let's just say the 12-5 declines a little bit from here, I still think we'll end up above the -- call it, the turbine capacity that we have, so we -- which is a great -- because you'd rather be in that position, because steam is the tough thing to get here as opposed to the other way around. So I think we are somewhat long steam. It's just a bit too early to say whether that's 2, 3, 4, 5, 6. But it's sort of in that range.

[David Galison]

Okay. And if you were able to produce above the 72, what would -- I guess because the PPA is for 72, correct?

[Marc Murnaghan, Chief Executive Officer and Director]

Correct, yes.

[David Galison]

So would you only be able to produce at 72 or is there a mechanism in place that you could produce over 72 if you wanted, or would it have to be renegotiated or...

[Marc Murnaghan, Chief Executive Officer and Director]

Well, there's 2 things. There's contractual and there's what you can physically do. And contractually, the issue would be more that if we could produce more than 72 net, we wouldn't be able to get the same price, but we could sell it. Interestingly, the country last year imported energy for the first time. The year before, they were a net exporter. So we could -- I think the price, it's not like the Alberta or Texas open market. It's -- but my guess is you'd get around $0.10, $0.095, $0.10 instead of our $0.126 right now. So we could -- you could spill that power into the "market". But physically, we can't without effectively adding another turbine. Now we do have a turbine in Houston -- no, sorry. We have -- we're storing and paying to rent an old -- it's a 25-megawatt steam Westinghouse turbine. So we could bring that. I think -- I don't think we would do that unless we had -- probably, we thought we were 10 megawatts long in steam, in terms of what it justifies. And there would be a small spend to just do the full integration. So that's all possible. But I would say that's more of a medium-term thing. The nice thing is, is that turbine is paid for. So we do have that asset. And so we could realistically bring it down. We could sell power. I don't think we could sell it at the existing PPA price. But then, we would have a small investment. It would be sort of a brownfield program.

[David Galison]

Okay. So then I guess, looking at your -- you've got just under $35 million in cash. The majority of your work is complete besides some basic maintenance it sounds like. What are your next priorities here?

[Marc Murnaghan, Chief Executive Officer and Director]

So we have sort of downplayed the binary unit a little bit. That's still absolutely on our radar screen. But I think the way that we're looking at that is when we -- it's a similar comment to -- there it is a separate turbine. So we could for sure produce that -- the CapEx that we've always talked about, includes a separate turbine or actually 2 small turbines. So we could do that. Again, that would come at a lower price although we're -- given that the marginal cost of this grid is oil. Oil has moved pretty reasonably in the last 12 months. But it would have been sort of -- not 12 months ago, but call it, August/September, where we decided that we were pushing up a hill a little bit and it was better to just put that on the back burner, because we've got the quotes, that market's still competitive. I know that that pricing is going to hold, at least for the next 12 to 24 months. And so we've got that. I'm -- to the extent that if the government came to us and said, we want to talk about getting more power, I just think that's a better negotiating dynamic to be in; that if they ask us to come to the table as opposed to them, that maybe we can get something a little bit higher than the $0.10, something closer to our PPA price. But then the other thing is -- so that's one thing. And there's, unfortunately, not much I can say on the call today. But the other opportunities that we see, call it, in the region, broadly speaking, to diversify, we see enough of them that that cash position we have is valuable and so we're hoping to do something. And I think the timing is interesting in that I think we have achieved a pretty important milestone now. And hopefully, there's not a lot of time in between that and finding something else. But, we do see opportunities sort of outside of Nicaragua to diversify.

[David Galison]

And, is there a preference for -- from an M&A standpoint, is there a preference for a type generating technology? And are there opportunities coming to you or is it more Polaris going out and searching them out? Or can you talk a bit about the landscape there?

[Marc Murnaghan, Chief Executive Officer and Director]

So we -- I mean I would say, other than solar, I'm not excluding any of the technologies. Sorry, I would say solar is excluded in the sense that it's almost impossible for us to compete at that. It's almost a financial product now that's played by the big people that have a cheaper cost of equity than we do. But I would also say greenfield geothermal is for sure not what we want to do, because we do see other opportunities. And the ones that have shown up tend to be more smaller -- small and smallish hydro opportunities in many different countries. And most of these are showing up at our doorstep. There's a few that we get -- well, I would say, it comes through either word of mouth or a banker. And usually the ones that come from a banker are competitive. And that's sort of -- we're not really -- again, I think it's tough for us to compete in a process. Our view would be we let that play out. If somebody buys it at 10x to 12x, great. If they don't, then maybe we can dust off the books. But we've got enough that we don't need to do that yet. So it's all sort of more the word-of-mouth that's come to us.

[Operator]

Your next question comes from David Quezada, Raymond James.

[David Quezada, Equity Analyst]

Just, I guess, a quick question on some of the unrest we're seeing in Nicaragua politically. And it doesn't seem as though there's any specific risk to you guys. But I'm just wondering if you see a potential for that to affect you in any way? And if there's some kind of regime change, how that would affect things with your -- potentially with your thoughts about getting an expanded PPA at some point?

[Marc Murnaghan, Chief Executive Officer and Director]

So we -- I think it's important to note we haven't seen any -- there's been no impact on current operations whatsoever. There was no impact, for instance, on the -- doing the HPS3 work, we actually had, I think, teams from 2 or 3 different countries on site well. There was no issues with that. It was down sort of under time, and I would say under budget. So that was fine. I think it's -- one of the nice things is where you're producing something that people need every day. This is not a luxury item, right? So the economy does roll on a bit here. And so we're just keep our heads down, stick to our knitting and we really haven't seen any impacts. In terms of if there's a regime change, how that would impact PPA negotiation, I would think that if that -- to the extent there is -- and I'm talking now at like, let's say, a binary unit or selling more power. I don't -- the existing PPA, I think, is sacrosanct. So it could impact that, I guess, David, in the sense that if, for some reason there is, a lot of that stuff tends to get pushed to the side for a period of time. But I don't really -- I'm not that worried about that in the sense that we're more squarely focused on opportunities outside of the country. So if that's the case, I don't think in the short term that's really going to impact us that much.

[David Quezada, Equity Analyst]

Okay, that makes sense. And my other question here just on -- you mentioned the rising oil price. Do you have a sense of how protracted of a period of higher oil price is going to, I guess, cause the grid or the government to feel a pinch and potentially come looking for more power? And do you have any thoughts on what an equivalent oil price would be that would cause power prices to -- spot power prices in the country to go higher?

[Marc Murnaghan, Chief Executive Officer and Director]

So I -- when you pull up, call it, a typical heat rate for an oil fired power plant and you do your math in terms of what's -- what that implies on a kilowatt hour basis, I had always come to something between $60 and $70 WTI, is the point at which they're going to start to think hard about it. So we are there now. I think it's tougher to gauge how long we need to be there before it actually pushes them into action. So my guess is where we are now is forcing the thinking on it. And whether they do anything, maybe you need it to stay here or go higher than here for a period of another 3 to 6 months. I think it just has to have some -- spend some time at these levels.

[David Quezada, Equity Analyst]

[indiscernible]

[Marc Murnaghan, Chief Executive Officer and Director]

That's a tougher part to call, I don't know whether that is 6 months or -- I don't know.

[Operator]

Our next question comes from Russell Stanley from Echelon.

[Russell Stanley, Equity Analyst of Special Situations]

Just -- I think just one question for the moment. Can you provide an update on Casita and what might be happening there with the World Bank?

[Marc Murnaghan, Chief Executive Officer and Director]

So I spoke to the main person at World Bank yesterday, actually. They have a -- the management team, it's -- I believe it's May 28 has to be done all of their diligence. And they will make a decision, their recommendation at that point in time, which remains that they will recommend it. But that's a decision that the formal approval from their board apparently won't come until September because they need a period of, I guess, whatever that is, 90 to 120 days, to review it. So -- but they're still moving ahead. And they're going to recommended it -- they make that recommendation apparently May 28.

[Russell Stanley, Equity Analyst of Special Situations]

Great. Sorry, just one last question. I guess, on the acquisition front. Can you provide some color as to what you might be seeing in terms of valuation demands or expectations at this point?

[Marc Murnaghan, Chief Executive Officer and Director]

Yes. They're always too high, so -- but we need to be -- but I would say, that's being tongue in cheek, Russell, but of course, everybody always wants too much. But I think there's enough in the size range that could make a difference to us. That -- where our capital that we have -- the one thing in these reasons is that below a certain size range, the capital doesn't flow freely. There is the CPPs of the world. They're all over the big stuff. But nobody is looking at assets realistically. If you think of an asset, let's say, $150 million in value, when they're built, they probably have only about $30 million to $40 million of equity, right? Because you can get -- with good contracts, you can get the debt for these things. But people aren't looking to put -- there's not a lot of people looking to put $30 million to $40 million to work. And so the people that do own a lot of those projects, they tend to be high net worth individuals that aren't really in the business in the long term. They're just not. So we see enough of that that's sort of off the beaten path without competition from other power companies that at least -- and with people like that, you can get a little bit creative in terms of how to get something done using our, call it, the resources we have without being dilutive.

[Operator]

Our next question comes from Brent Buchanan, CIBC Wood Gundy.

[Brent Buchanan]

Marc, just a quick follow-up to the question about the unrest recently. And my concern is not about your plant because I've been there and I'm very comfortable with where it is and you're not going to be impacted directly. But it's more the financial situation and the government. And it's kind of highlighted the problem there, the restrictions. And I'm just curious how you actually get paid for your power. Do you ever look at that? Is there any risk of -- if it's the government, I would expect directly or indirectly that is paying. And even delays in getting paid, how do you look at that and how do you get paid by them?

[Marc Murnaghan, Chief Executive Officer and Director]

We get paid, call it, we bill monthly. And we -- and yes, just to be clear, the entity is indirectly the government. The, technically speaking, 2 shareholders are private Spanish EPC construction companies, that did a lot of work in-country and they sort of took back the equity position. They built a lot of the grid. So we haven't had issues in terms of payment. I know years ago that there was issues in terms of timing but never ever were they not received. I think one of the things I would say, I think you need to have a pretty -- I think the growth rate can slow down for sure because of this. I don't know if that means a protracted sort of recession type situation. I don't know. I think you would have to have a pretty serious event like that before we would need to start being worried about getting paid. Because they're getting paid, right? I mean power, again, power is a necessity. What I would say is though is that -- so we haven't seen anything of that nature yet. And the fact that we do have 7 different multilateral banks as lenders is important in the sense that all of those other banks, so IFC, [ IBB ], FMO, they do things in-country and to the extent that the situation actually got tough, they're going to get leaned on more in country to help out. And so having that relationship with them, I think -- well actually, no, it puts us at the top of the payment list. We are at the top. And so that helps, and it would continue to help to the extent we entered into -- I think you're right, I think the issue to think about is that do you get into a situation of just a big recession and it's more of a financial than an operating thing. But I think we are different than other operators in country on that basis.

[Brent Buchanan]

Great. So these Spanish companies, you get paid by them? They would bill -- they'd be billing the actual end users of the power or they'd be billing the government?

[Marc Murnaghan, Chief Executive Officer and Director]

So yes, they sell to both retail and, call it, industrial, commercial users. And they bill directly.

[Operator]

Our next question comes from [ Dave Brown ], private investor.

[Unknown Attendee]

I have 2 questions here. The first one concerns injection capacity. Do you have a pretty good surplus of injection capacity. And if that's correct, there was another well, I do believe, that was serving as an injector well and there's a possibility of having that put into production. Is that something you're still thinking about?

[Marc Murnaghan, Chief Executive Officer and Director]

So good question. So the first, injection capacity, I didn't really talk about it. The injection wells never get much of a review on these calls. But we -- the first well we drilled in the last campaign was something called 11-2, which was a targeted injection well. And that, I think, is actually the highest permeable well period ever drilled in the field and it could probably take 2/3 of our total brine flows to inject on its own. So we feel very comfortable with our injection capacity as it stands right now to do the full capacity of the plant and even more. So very happy with that. And then the other one that you're talking about is called 9-2. So we do have -- 2 of the wells that we have currently in the field that are producing, 5-1 and 6-1, used to be injection wells. Over time, their permeability increased and they were brought on to be production wells. We were thinking 9-2 could be that. Now we did try. It didn't really work. So we put it back into injection service. There are some debates as to how long, whether we should have waited more because they take a long time to heat up because when you're injecting at 160 degrees Celsius versus rock of 250, you cool the rock down and it takes -- it can take 3 to 6 months to heat up. And I think we waited about 3 to 4 months, float it -- tried to float it a bunch of times. It didn't flow. So we put it back into injection service. But now -- and now I would say, it's probably not something we would go back to, given the success of the drilling campaign as well.

[Unknown Attendee]

Okay. Second question concerns the binary unit. And I did send an e-mail to your company and got a reply. But I'd like to discuss this a little more. Can the binary unit be used to produce bigger internal electricity, so that we can sell every -- you could sell a lot more at the [ plant ]?

[Marc Murnaghan, Chief Executive Officer and Director]

So the -- that would be a smaller unit, but it -- so it could -- we will explore it a bit more here. The issue is that -- there are sort of 2 issues, right. The first issue is just call it a technical issue. We can do a 5-megawatt binary to effectively feed our own parasitic load. The issue that the engineers are working on is whether -- the difference is what they call, black start capability, is what they're looking into. It's just -- so 99.9% of the time, you're fine, and you could do it to feed it. The issue is, is if you ever have a trip of that, do you trip your whole system. And so there's some engineering that needs to be done. So we are looking at that. My sense, although I can't commit to it now, my sense is that's a technically solvable issue. And the reason is, is because you're truly feeding your own load as opposed to dumping that power onto the grid and taking power from the grid to feed your auxiliary load. So -- because from a contractual perspective, we would have to do that. We would have to literally have our parasitic load accept the power directly and that does have some implications for if there's ever trips, you could take down the whole. So we're looking through that. I think that, that is doable. But I can't commit to that yet. And then we would just need to make sure -- the second issue would be that it's not viewed as -- that it's viewed as that we're -- that we wouldn't have any issues getting permits, et cetera, to do it. So that's more of a government relationship issue. So we've got to figure out the first one first, but it is a good point to bring up because it is absolutely something that we will look at doing. It's a natural extension to where we are now to see if we can do that, to reduce that parasitic load because that's a very profitable 5 megawatts to do that.

[Operator]

Our next question comes from [ Ken Shilliday ], private investor.

[Unknown Attendee]

In terms of opportunities outside of Nicaragua, are you only looking at geothermal? Or are you looking at solar, wind, hydro or something else?

[Marc Murnaghan, Chief Executive Officer and Director]

Okay. I did just go through this. But -- so we -- I did say we would not look at solar. We would look at everything else. And we would but -- and I'm also -- I would say we are excluding greenfield geothermal, because it's too long. So we would look at, I would say, there's some opportunities that are like through the operating geothermal that we're looking to expand, so we're looking at that. We're looking at hydro. We are looking at wind. No biomass technically speaking, but -- so that's what we are looking at.

[Operator]

[Operator Instructions] Your next question comes from the line of Keith Schaefer from Oil and Gas Investments.

[Keith Schaefer]

I guess my quick question is when we first started out the story here, we had talked about the idea of every megawatt increase is worth USD 1 million in EBITDA. Is that -- are we still on for that? Is that still a fair rule of thumb to look at or...

[Marc Murnaghan, Chief Executive Officer and Director]

Yes. Except -- so, for instance, if we did a binary, the $0.10 -- that's at the $0.125. So if we had to do a binary and we decided to do it at a lower price, it would be -- whatever that fraction is, call it 80% of that.

[Keith Schaefer]

And then what would -- we averaged around 59 3 I think it was. What did we end the quarter at?

[Marc Murnaghan, Chief Executive Officer and Director]

Q1?

[Keith Schaefer]

Yes.

[Marc Murnaghan, Chief Executive Officer and Director]

So I know Q1...

[Keith Schaefer]

What was the exit? Because we're at 73 megawatts gross now. And if we were at 57, or 59 net, that would have been -- so I'm just trying to figure out where we were at right at quarter end and where we are now, and just try to do my little forensic math and cash flow for next quarter.

[Marc Murnaghan, Chief Executive Officer and Director]

Okay. So just to make sure you get it right though, is that we did have to -- we had about a 5-day shutdown of 20 megawatts to do -- or 23 megawatts to do the upgrade of the separator. So that'll have some impact, but -- so you can't run -- what you could do is you run the whole quarter, let's just say, at -- well no, sorry, I got to step back here. This quarter will have April effectively, which we don't -- I mean I can't give out that number but it was at -- think of April as the previous, which would have been running around 58, 59 net?

[Shane Downey, Chief Financial Officer]

Yes, 58 to 59...

[Marc Murnaghan, Chief Executive Officer and Director]

Net?

[Shane Downey, Chief Financial Officer]

Previous to the commissioning of HPS3.

[Marc Murnaghan, Chief Executive Officer and Director]

Okay. And then May, June, call it add 10 to that, okay? Now we may be able to improve that. We'll see here. But add 10 to that. And then you just need to back out, call it, 22, 23 megawatts for 5 days because of the works we did. Does that make sense?

[Operator]

Your next question comes from the line of [ Dave Brown ], who's a private investor.

[Unknown Attendee]

Let's say for the next year or 2, there's nothing for you to buy or do with your money. So you're obviously going to have a lot of extra cash flow. If that goes towards let's say your debt, what's your average interest rate you're paying right now that could be -- and could it be retired with all that money if, let's say, over the next 2 years of the surplus you have?

[Marc Murnaghan, Chief Executive Officer and Director]

So we have 2 different -- we have a senior and a subordinated component. And the blended, like the cash, 8%, 8.5%, I think. But the issue with our subdebt is without renegotiating something, that's very hard to repay. We could pay down some of the senior debt, without a big [indiscernible]. It's sort of around 1.5%, 2%. But there's a make whole on the sub, that is reasonably onerous I would say. So there's not a lot of incentive to pay that down.

[Unknown Attendee]

How much is the senior debt in millions of dollars?

[Marc Murnaghan, Chief Executive Officer and Director]

$145 million?

[Shane Downey, Chief Financial Officer]

That's $140 million as at March 31.

[Marc Murnaghan, Chief Executive Officer and Director]

Sorry, $140 million.

[Unknown Attendee]

So you could do the major bite into that if you so chose, so.

[Marc Murnaghan, Chief Executive Officer and Director]

Yes, I mean, listen, we would have -- now, don't forget, our total debt-to-EBITDA will be coming down to levels pretty low for these types of long-term contracted assets. So I would say, we would look at everything from paying down some debt, increasing the dividend more than we otherwise would have, maybe buying back stock. We would look at all of those.

[Unknown Attendee]

Okay. So there's certainly things to do with your money, obviously?

[Marc Murnaghan, Chief Executive Officer and Director]

Yes, yes. There's a whole bunch of levers that -- if we think that growth outside of what we have is not possible, then we could do those things and I would say your concept of the -- I can't commit to it yet, but the concept of a 5-megawatt parasitic load binary is something that wouldn't represent the highest return on our capital, I think, so we would look at that.

[Operator]

And we have no further questions in the queue at this time. I will turn the call back over to the presenters.

[Shane Downey, Chief Financial Officer]

Okay. That's very good. Thank you, everyone, for the time.

[Marc Murnaghan, Chief Executive Officer and Director]

Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. And you may now disconnect.