Home' Trinidad and Tobago Guardian : September 6th 2015 Contents SBG14 VERBATIM
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 6 • 2015
From the economic modelling
performed on the PPGPL busi-
ness the average dividend yield
over 20 years on the TTNGL
shares for the base case is ~ 13.7
per cent with a low case of ~5.9
per cent and a high case of up to ~22 per cent.
There is, however, a greater likelihood of real-
ising the low case versus realising the high
case given a greater likelihood of :
i) a decline in the production of NGLs
(propane, butane and natural gasoline),
ii) a longer period for recovery of product
prices which are highly correlated with crude
oil prices, and
iii) upward pressure on operating and over-
head expenses with ageing assets.
Purchasing the TTNGL shares at the price
of TT$20/share even under the low scenario
case seems to be a fair investment with an
average dividend yield of greater than 5.9 per
cent when compared to other T&T company
shares and mutual fund investments for 2015
which have realised dividend yields between
2.0 per cent and 4.0 per cent.
From the analysis performed there is little
or no basis for stock price appreciation after
the IPO. Borrowing at current interest rates
to invest in TTNGL shares or speculative
investing hoping for a rapid share price appre-
ciation seems to be an unwise investment
decision at this time.
3.0 PPGPL business risks
PPGPL is a production commodity business
and there are a number of risks associated
with the business. The significant risks asso-
ciated with the PPGPL business in order of
priority on a scale of high, medium and low
are as follows.
Risk assessment basis
High risk: Greater than 10 per cent impact
on revenue, net income and dividends and
greater than 1 in 5 chance of occurring.
Medium risk: Between greater than five
per cent and less than 10 per cent impact on
revenue and a greater 1 in 10 chance of occur-
Low risk: Between 0-5.0 per cent impact
on revenue and a greater than 1 in 100 chance
I. Product price risk: high
PPGPL derives its revenue from the sale of
propane, butane and natural gasoline at a pre-
mium or discount to US referenced Mont
Belvieu (MB) spot prices.
Propane, butane and natural gasoline prices
are highly correlated with crude prices and
crude prices can fluctuate in an extreme way
as has been experienced over the last year
when the price fell by more than 50 per cent.
As an example US MB spot price for propane
in June 2014 was 1.046 US$/US gallon and
in June 2015 is 0.369 US$/US gallon, close to
a 65 per cent drop. Propane, butane and natural
gasoline MB prices are highly correlated to
WTI crude prices.
PPGPL premiums are dependent on free on
board (FOB) prices at alternative sources of
supply and relative freight costs to deliver to
The most significant competitive source of
supply to PPGPL is the US. The US has how-
ever been constrained on being able to export
the glut of NGLs that currently exists in the
Port expansion plans are underway in the
US to relieve this export constraint. Therefore
in the future there could be downward pressure
on PPGPL s current product premiums.
II. Production risk: high
The key drivers for the production of
propane, butane and natural gasoline is the
quantity of raw natural gas that is processed
and the liquid content of the gas. To a lesser
degree, the facility extraction efficiency and
facility downtime also impact the production
The facility is relative simple technology
and PPGPL has demonstrated strong operating
capabilities with greater than 98 per cent
facility uptime over its 24+ years of operating
From data available from the Ministry of
Energy s Web site Monthly Bulletins it can be
seen that NGL (propane, butane and natural
gasoline) content of the raw natural gas fell
by close to 36 per cent between 2010.
Figure 1 shows the change in natural gas
liquids (propane, butane and natural gasoline)
produced which is aggregated at PPGPL
between 2010 and 2015 (est).
Looking to the future there is uncertainty
in the quantity of propane, butane and natural
gasoline that is available for sale by PPGPL.
The rate at which the NGL content in the gas
stream is decreasing has been declining.
There was a historical drop of close to 20
per cent in the NGL content in the raw natural
gas between 2011 and 2012 and a forecasted
drop of close to 6 per cent between 2014 and
2015 which is noticeable lower.
The bpTT s Juniper gas field production is
expected to start in 2017 and depending on
the NGL content in the gas stream can either
have a positive or negative impact on PPGPL s
PPGPL may have further production oppor-
tunity from processing any raw natural gas
that goes to the Union Industrial estate. The
gas to the TGU facility and the CGCL(
methanol/DME facility) in total from reports
in the newspapers is close to 220 MMcfd.
Scaling off of current production levels if
this project meets acceptable economic hurdle
rates PPGPL can produce an additional 1800
US barrels per day of NGLs or 672,000 barrels
per year which represent a 6.0 per cent increase
in NGL production over estimated 2015 pro-
Capital will have to be invested to design
and construct such an extraction facility which
in the short term could reduce dividends
payable to shareholders.
III. Product quality risk:
PPGPL product price is contingent on the
products meeting industry quality specifica-
tions The CariCRIS website site on its credit
ratings for PPGPL on November 2014 cites a
quality concerns for one of PPGPL products,
natural gasoline, which represents about 35
per cent of PPGPL s total production. There
are no cited quality concerns with propane
"PPGPL has attempted to reduce the level
of contaminants in its natural gasoline products
by embarking on a product purification project.
Most of the work completed to date has focused
on researching alternative solutions. In 2013,
the project advanced to the FEL14 Stage which
requires liaison with various upstream players.
A final decision with respect to the selection
of a solution is not expected before the end
of 2015, with implementation taking place two
to three years thereafter.
CariCRIS believes that if the product con-
tinues to be contaminated, PPGPL would have
to search for alternative markets for its prod-
ucts. This has the potential to increase the
volatility of PPGPL s revenue and lower prof-
There is no mention in the IPO of any action
that is going to be taken to address the quality
concerns with the natural gasoline. On the
above basis that product quality could impact
on the marketability and/or selling price of 35
per cent of PPGPL products this risk is defined
as a medium /high risk.
Risks and rewards
An analysis of the NGL IPO
Continued on Page 15
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