Home' Trinidad and Tobago Guardian : August 13th 2015 Contents 1) Phoenix Park s revenue and total comprehensive income
have declined for every year since 2011, which the prospectus
indicates was its peak year in terms of sales and earnings in
the last six years. The company s revenue has declined by 40.5
per cent between 2011 and 2014 and its total comprehensive
income declined by 48.4 per cent in that period. In effect, the
company s revenues and income is at 2009 levels (See table).
Phoenix Park s revenue of US$696.8 million in 2014 was 13.8
per cent less than its US$808.3 million revenue in 2013. Its total
comprehensive income in 2014 of US$166.6 million was 17.8
per cent less than its income of US$202.6 million in 2013.
At page 170 the prospectus explains the cause of the decline
in revenues and profits between 2013 and 2014 and the possible
impact on those measurements in 2015: "In the second half of
2014 and continuing into the first quarter of 2015, Phoenix Park
experienced a significant drop off in natural gas liquids (NGL)
prices. This decline affected earnings in 2014 and is expected
to have a continued drag in 2015.
"While NGL prices are expected to gradually rise in 2015,
they are expected to be at least 45 per cent lower than 2014
"(The consultants) also added that after peaking in 2011 most
NGL prices should decline through 2015 due to supply surpluses
resulting from the rapid development of shale gas reserves. The
trough year for crude oil and LPG (cooking gas or propane and
butane) in North America will likely be 2015.
"In 2016, all cooking gas (LPG) prices are expected to rise
as expansion of export terminal capacities help shrink the
cooking gas surplus. Also prices for US crude oil should begin
to strenthen in 2016. This rise should have a positive influence
on natural gasoline prices."
In my view, the most important information in that quotation
is the fact that NGC expects the prices Phoenix Park will fetch
for its products could be "at least" 45 per cent lower than in
The expected 45 per cent decline in Phoenix Park s product
prices will translate into a sharp decline in the revenue and
total comprehensive income for Phoenix Park and for TTNGL,
the company whose shares are being sold to the T&T public.
In a normal company, a reduction in profitability is expected
to mean a reduction in the dividends that the company can
distribute. That may not be the case with TTNGL, but it might
be useful for NGC to disclose to potential investors what its
future dividend policy is going to be. It might be even more
useful to potential investors if NGC had published the second
quarter results of Phoenix Park in this prospectus or if those
results are published as an addendum to the prospectus.
Phoenix Park financials 2009 to 2014 (in millions of
2009 2010 2011 2012 2013 2014
Revenue $618.6 $984.2 1,172.3 $844.2 $808.3 $696.8
Total income $146.9 $245.5 322.9 $213.2 $202.6 $166.6
On the issue of a potential strengthening of oil prices
in 2016, the US Energy Information Administration on Tuesday
lowered its 2016 crude oil forecast, based on moderating global
growth and higher crude production.
The federal Energy Information Administration said in its
monthly Short-Term Energy Outlook that it had lowered its
2016 forecast price for US benchmark oil by US$8 to US$54
per barrel in 2016 and its 2015 forecast by US$6 to US$49 per
barrel. The administration said it expects Brent, the global
benchmark, to average about US$59 per barrel in 2016 and
about US$54 per barrel in 2015.
What is even more disturbing than the decline in Phoenix
Park s product prices---which is a cyclical issue, meaning that
the prices of propane, butane and natural gasoline are likely to
go back up in the future---is what appears to be some structural
issues with Phoenix Park that are disclosed on page 283 of the
Comparing Phoenix Park s financial performance in 2014
with 2013, the prospectus states: "Revenue declined by approx-
imately US$111.5 million year-on-year to US$696.8 million.
Approximately US$57.2 million of the decline was caused by
a 5.8 per cent decrease in average Mont Belvieu (the benchmark
for Phoenix Park s products) selling prices, attributable to excess
NGLs supply and high inventory levels in the market.
"This decline was partially offset by an increase in average
price differential due to market arbitrage opportunities for LPG.
Significant customer contracts were renewed at these higher
prices in 2014 and accounted for US$11.6 million in higher rev-
"The remaining US$65.9 million of the revenue decline was
due to a decrease in production volume primarily from lower
NGLs content feedstock and lower delivered volumes from
Pause. Breathe. Re-read the quotation...slowly.
Those five sentences on page 283 may be the most important
words in the 314-page prospectus.
Those five sentences are so important that I sought clarification
from NGC and from First Citizens Brokerage and Advisory
Services on Monday. That clarification was not provided as of
1.33 pm on Wednesday afternoon.
What I understand those sentences to mean is that Phoenix
Park s revenue declined by 13.8 per cent in 2014 compared with
2013 s revenue as a result of a 5.8 per cent average decline in
Mont Belvieu prices. It says that about half of the decline in
revenue---some US$57.2 million out of US$111.5 million---was
due to product prices that were 5.8 per cent lower.
But it also suggests that more than half of the decline in rev-
enue---some US$65.9 million out of US$111.5 million---"was due
to a decrease in production volume primarily from lower NGLs
content feedstock and lower delivered volumes from Atlantic
LNG." In other words, Phoenix Park is getting less gas and the
gas it is receiving contains less liquids.
In my view, this is an issue that is related both to the cur-
tailment problems that have plagued the country for the last
three years and to the fact that Phoenix Park is getting a gas
supply that is drier than previously. In other words, the issue
of the amount of gas and the quality of the gas Phoenix Park
receives may be even more serious than the price that the com-
pany fetches for its products.
If Phoenix Park has a structural problem with its gas supply,
half of that problem, the amount of gas it receives, may be
relieved somewhat in 2017 when the Juniper platform is com-
missioned. But what about the issue of dry gas and its impact
on production? From my first reading, the prospectus seems
to be silent on this important issue.
Also of note is the fact that Phoenix Park s NGLs declined
by 28 per cent between 2010 and 2014, according to the table
on page 282, going from 45,631 barrels per day in 2010 to 32,849
barrels per day in 2014. This was mainly caused by lower NGLs
content in the gas stream and lower processed gas volumes.
In fact, on page 280, a reader of the prospectus will find the
statement that Phoenix Park s liquids volume has been negatively
impacted by the reduction in NGLs content in supplied inlet
gas, "which has decreased by 31 per cent between 2010 and
2014 resulting in lower NGL production from gas processing."
That page discloses that the company s production was also
impacted by a decline in the supply of gas volumes as a result
of gas curtailment in 2012.
What s worse is that if a 5.8 per cent decline in product prices
leads to a US$111.5 million decrease in revenue, what does the
expected 45 per cent decline in product prices for 2015 translate
to in revenue, and therefore, profit terms?
Is NGC in a position to advise potential investors in the
The prospectus also reveals that TTNGL declared a total
comprehensive loss of $804 million in 2014 as a result of an
impairment charge of over $1 billion. This is disclosed on page
76 of the prospectus. On page 102, NGC reports that it engaged
an independent valuation expert to conduct an impairment
assessment of the company s 39 per cent investment in Phoenix
Park as at December 31, 2014.
The prospectus states that the recoverable amount of NGC s
investment in Phoenix Park is based on a value-in-use calculation,
which uses cash flow projections based on financial information
approved by the board of Phoenix Park covering 19 years from
2015 to 2033.
One of the interesting disclosure here is the projection that
the "selling prices of NGLs are expected to recover from the
depression in the current market conditions in 2018 and steadily
increase year on year."
Although TTNGL had a huge loss for 2014, it appears
that the company declared an interim dividend of $143 million.
For the first quarter of 2015, TTNGL had total comprehensive
income of $28.3 million or $0.24 a share. Extrapolated over the
whole of 2015, the projected earning of TTNGL would be $0.96
Does that mean NGC and the Government are proposing to
offer shares in TTNGL to the public at a PE ratio of more than
20 times forecast earning?
What s interesting, and positive, is that while Phoenix
Park s total comprehensive income for 2014 is US$166.6 million,
it paid out US$165 million in dividends. For 2013, income was
US$202.6 million and it paid out US$220 million.
• Is it sustainable for a company to be paying out more than
100 per cent of its net income?
• Will this policy continue in the future?
• How does the company plan to finance capital upgrades?
AUGUST 13 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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Some initial observations on the Phoenix Park IPO
NGC president Indar Maharaj leans over to have a word with
Energy Minister Kevin Ramnarine at Monday's launch of the
TTNGL IPO at the Hyatt hotel in Port-of-Spain. PHOTO: JEFF
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