Mar 2014 Financial News

President: NGC to expand to North America

Mar 20, 2014

The state-owned National Gas Company of T&T (NGC) is planning to expand into North America, NGC president Indar Maharaj said during a March 7 interview at the company’s Point Lisas head office.

“Externally, we are looking at some opportunities,” he said. “In Trinidad, we might be a big fish in a small sea, but when you get outside there, you’re a small fish in a big sea, and you can be gobbled up quickly if you don’t understand what you’re doing.”

Asked for specifics on the external expansion plan, he said: “Right now, we’re looking at North America, and there is a lot happening right now in the hydrocarbons business in North America, and there are certain aspects of that business that we understand very well.

“We understand the pipeline business. We understand gas processing. Those are areas and opportunities that are there for the picking. What is happening right now in the US is that there is huge growth in gas production, and to move that gas which is being produced, pipelines (must be laid) to the gas processing plants and so on, and that is right up our alley. In addition to that, if we can find good low-risk upstream opportunities, we might take the opportunities.”

Questioned about the type of low-risk opportunities, he said: “Just like what we did with Total.”

In October last year, NGC acquired France’s Total’s assets in T&T for US$473 million. Maharaj explained that the assets owned by Total had already passed the high risk stage. The high risk stage, he said, is the exploration stage.

“We are not yet big enough for that type of risk. Assets like Total that are mostly derisked” are the types of opportunities that NGC will be considering in the US, he said.

“Essentially, we developed, in 2011 a strategic plan, and we’re all about developing that plan. The focus of the plan was: one, to entrench ourselves in the entire value chain locally; and two, to move from being locally-based to globally-based,” he said.

The plan is to “secure what we have while at the same time, invest for the future,” Maharaj said.

The NGC president said some of the shortterm goals have already been met, and pointed to the acquisition of Total’s assets in the producing Angostura field operated by BHP Billiton, and the increased stake in Phoenix Park Gas Processors Ltd (PPGPL).

He said, however, for the local part of it, “getting more involved in the value chain” and “looking for opportunities downstream” are still on the cards for NGC, although the company is taking time to digest its 2013 acquisitions, which exceed US$1 billion.

NGC’s liquidity plan

Asked if it’s NGC’s plan is to keep the liquidity position it has now (estimated by Standard & Poor’s at more than $12 billion), he said, “Having money sitting idly does not make any sense, so in fact one of the things we have started to do—we have brought on a consultant for our own investments—and we’re doing that with the cash. That’s one aspect of it, and as I said, we went after PPGPL; we went after Total. That combined was about US$1 billion in one year. That will take a bit of digesting. We need to ensure that those acquisitions are properly optimised.”

Moody’s, a Standard & Poor’s peer, had a different estimate for NGC’s cash balance. Asked directly, Rebecca Ramdhanie, NGC’s vice president for finance, who was also in the interview at Point Lisas, said she had only preliminary, unaudited results which she was not prepared to share as it had not been shared with the shareholder, the Government.

On NGC’s liquidity profile, Moody’s said in its 2014 rating: “NGC should have good liquidity in 2014. The company has sizeable cash and short-term investments (estimated at around US$1.4 billion at year-end 2013), kept primarily in US dollars, to help maintain operating and investment flexibility as well as sound cash flows. Capital expenditures are manageable, budgeted at US$551 million and comprised of a number of small projects, the largest two of which are a new corporate headquarters (total cost of US$234 million, US$119 million budgeted in 2014) and a wastewater treatment plant (total costs of US$181 million, US$125 million budgeted in 2014).”

Moody’s said it expects NGC to fund all of its cash needs from internally generated cash flows and balance sheet cash. “Potential opportunistic investments could, however, prove actual capital expenditures to be higher than budgeted. Refinancing risk is minimal given the company’s vast majority of long term debt (US$400 million bonds) matures in 2036 and there are no debt maturities in 2014. The company does not have access to committed credit facilities but has had minimal reliance on uncommitted credit lines over the last few years. We expect that NGC will be in compliance with its covenants in 2014,” Moody’s said.

IPO by June

As a government mandate, the 39 per cent of PPGPL that NGC acquired from ConocoPhillips for US$600 million is to be floated on the local stock exchange to give citizens direct participation with dividend potential in the energy sector, Maharaj said. Following the acquisition, PPGPL is now owned 79.8 per cent by NGC, 10.2 per cent by National Enterprises Ltd, and 10 per cent by GE (former General Electric of the US).

“We’ll be IPO-ing that very shortly,” Maharaj said, referring to the initial public offer (IPO) of shares in PPGPL that NGC was mandated to place. Asked for a date, he said, “I wish I could give you a date, give the public a date, but there are some things that are within our control, and there are some things that are within the control of another government agency.”

Asked for a ballpark date, he said, “By the end of June, for the latest. Actually, we’re targeting much earlier than that, but there are some issues in there that we have to deal with, and the reason is that it’s a recent acquisition, and there are some things we have to put in place before we take it to the stock exchange.”

The share price and the number of shares, he said, “at this point in time, is confidential,” but added that the initial offer will be about 50 per cent of what NGC acquired, which translates to about US$300 million in stock to be floated.

“NGC has to become a global player. As a country we have no choice. Our local hydrocarbon industry is at a very mature stage, and we need to look at, shall I say more youthful opportunities outside of T&T,” Maharaj said.

Ironically, while credit rating agency Standard & Poor’s pointed to the need for NGC to broaden its horizons, Moody’s suggested it would frown on NGC’s international expansion. In its 2014 rating of the company, Moody’s reaffirmed its Baa1 rating of NGC, adding that its outlook for the company is stable. However, the agency said: “While international opportunities are targeted at only three per cent of total revenues, should NGC decide to invest large commitments overseas, this could possibly affect the company’s business risk profile.”

On the other hand, Moody’s praised NGC’s conservative fiscal management. The rating report said: “NGC has exhibited conservative fiscal management, with good credit metrics relative to other midstream gas companies, and state-owned energy companies, both within T&T and globally, a profitable track record over its 39-year history, a nonunionised work force, a stated dividend policy and clear objectives for achieving specific return targets on assets and equity.”

Further down, the Moody’s report said: “NGC is expected to post strong earnings and cash flow for the full year 2013, with strong ammonia prices and methanol prices offsetting the impact of maintenance-related shut downs of certain platforms by upstream producers.

“In 2014, NGC’s earnings and cash flows could be modestly weaker as a result of both ammonia and methanol prices facing downward pressure as additional supplies come on stream globally. However, upstream maintenance programmes in Trinidad are now largely completed, and we continue to expect NGC to produce robust earnings and maintain solid financial leverage metrics in 2014.”

National development agenda

NGC’s traditionally high cash position and earnings profitability has motivated the government to use the company as an instrument for non-gas industrial development, infrastructure construction and subsidies to the weaker state-owned electric utility sector, Moody’s said.

About 19 per cent of NGC’s volumes are sold to the state-owned power company, T&TEC, Moody’s said. NGC’s sales agreement with T&TEC represents NGC’s lowest priced customer (as the Government of T&T determines the sales price) and NGC has experienced payment delays from T&TEC on numerous occasions since 2005, Moody’s reported.

“In 2013, NGC converted roughly US$319 million in past due receivables from T&TEC into an amortising three per cent, seven-year term loan, with a maturity date of June 2018,” Moody’s said. T&TEC general manager Kelvin Ramsook had shared some details of this “loan” in Parliament on March 11.

“The Government of T&T has used NGC as a policy tool to build a pipeline to Tobago,” the Moody’s report said. “This pipeline, which came on stream in 2013 at a cost of US$187 million, is uneconomic due to insufficient throughput and a low gas sales price.

“NGC was mandated by the Government to build this pipeline to supply natural gas to Tobago for power generation and industrial development; however, without a costly extension to Barbados, revenue generation from this pipeline is insufficient to recover operating costs. The Government of T&T remains in negotiations for the Tobago-Barbados pipeline extension to be implemented and operated by a third-party company. NGC is expected to take a ten per cent stake in the Tobago-Barbados pipeline project.”

The Tobago-Barbados pipeline is to be operated by Beowulf Energy of the US.

The North-East Offshore (NEO) pipeline that was undertaken to expand NGC’s offshore capacity has been completed, Moody’s reported. “Construction of this pipeline was completed for a hefty cost of about US$580 million, but will remain underutilised for at least the next two years because the additional downstream plants expected to come on stream did not materialise.

Source:
ALEEM KHAN
akhan@news.co.tt
Business Guardian, Page BG10
Thursday March 20, 2014