Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

OCI Partners LP (NYSE:OCIP)

Q4 2013 Earnings Conference Call

March 19, 2014 10:00 AM ET

Executives

Frank Bakker – President and CEO

Fady Kiama – VP and CFO

Analysts

Dan Juster – Citi

Aleksey Yefremov – Bank of America Merrill Lynch

Matt Niblack – HITE Edge

Michael Sheridan – Longbow Capital Partners

Robert Becker – Keeley Asset Management

Operator

Good morning. My name is Stephanie. And I will be your conference operator today. At this time, I would like to welcome everyone to the OCI Partners LP 2013 full year and fourth quarter results 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.

Frank Bakker, President and CEO of OCI Partners LP, you may begin your conference.

Frank Bakker

Good morning everyone and thank you for joining us on our 2013 full year and fourth quarter earnings call. First, I will provide briefly few of our IPO; provide an overview of 2013, and an update on our growth initiatives. After that our Chief Financial Officer, Fady Kiama will follow-up with the presentation of the financial highlights for the fourth quarter and the full year 2013.

Today we will provide certain forward-looking statements and the partnerships outlook for the future. In this regard, we direct you to the risk factors and other cautionary statements set forth in the partnerships most recent reports and other filings with the SEC.

We will also include the reference to certain non-GAAP financial measures such as EBITDA, the non-GAAP financial measure section of our earnings press release, reconciles EBITDA to the most directly comparable GAAP financial measure.

So let me start with a short summary of our IPO. We priced our IPO of 70.5 million common units at $18 for a common unit on October 3, 2013. The common units began trading on the New York Stock Exchange in October 4, 2013 under the ticker symbol OCIP. Through the IPO, we raised net proceeds of approximately $295.3 million. We used the net proceeds to pay in full approximately $126.1 million of the outstanding principle and accrued interest on our Term B-1 loan and provide additional working capital of approximately $169.2 million to fund initial capital balances and to pre-fund our important growth initiatives which is our debottlenecking project.

Before we start with the business update, I would like to highlight what we have seen in the industry. During 2013, we witnessed an increasing global demand for methanol driven by an improved global macroeconomic environment and increased usage of methanol in China for both gasoline blending as well as the production of olefins.

On the supply-side, the global methanol industry faced natural gas curtailments and disruptions during 2013. Producers in Trinidad have been facing significant natural gas feedstock shortages which has reduced exports of both methanol and ammonia from Trinidad to the U.S. Increased methanol demand and the natural gas disruptions led to a high methanol pricing during 2013 and the first quarter of 2014 compared to 2012.

If you look at the ammonia market, the ammonia market showed weakness throughout 2013 as compared to the previous year, but has shown signs of improvement over the past several weeks. Ammonia prices have firmed up in Yuzhnyy and the Middle East during February and the Tampa CFR March contract price settled at $460, a $45 increase over the previous month. In addition, rising political tension in Ukraine is raising prospects of higher natural gas prices from Russia which would help raise prices at marginal cost level. We also expect this improvement in prices to continue throughout the second quarter of 2014 as the buying seasons commences ahead of the spring planting seasons.

With respect to our business there are four factors that directly affect our financial results. These are our capacity utilization, our sales volumes, selling prices of ammonia and methanol and the natural gas price. I will touch on each of these factors.

During the year 2013 ammonia production unit operated 344 days and the methanol production unit operated 336 days. Both production units ran above nameplate capacity and that put the utilization rates of both units in excess of 100%. We stored approximately 652,000 metric tons of methanol approximately 3600 metric tons of procured methanol and approximately 259,000 metric tons of ammonia.

With respect to our selling prices for 2013, our methanol selling price increased 70% compared to 2012 selling prices for methanol increased $379 per metric ton to $444 per metric ton. On the other hand, our selling price for ammonia decreased 10% as compared to 2012 declining from $581 per metric ton to $525 per metric ton. The price of our primary feedstock natural gas increased to an average of $3.78 per Mmbtu during 2013 as compared to an average of $3.30 per Mmbtu during 2012.

During the third quarter of 2013 we experienced 13 days of unplanned downtime as we took our methanol unit offline to repair our steam gas machine in July and August. With filed the business interruption claim with our insurance providers and received insurance proceeds of $5.1 million during the fourth quarter of 2013.

Let me now touch up on the very important growth initiatives our debottlenecking project. Our debottlenecking project is on track to be completed during the fourth quarter of 2014 we expect that the debottlenecking project we have increased methanol capacity with approximately 25% and ammonia capacity with approximately 15%. We also expect that our debottlenecking project will lead to a reduction in our natural gas and hydrogen feedstock consumption per metric ton of methanol and ammonia and further it will improve our operating reliability.

The total cost for the debottlenecking project and the turnaround are in line with our previously disclosed budget both our production units will be shut down for approximately 40 days during the fourth quarter of 2014 in order to complete project. The project was previously earmarked to be completed during the third quarter of 2014 that has been shifted to the fourth quarter of 2014 because the shift in the delivery of the long lead items.

This concludes the business updates; I will now turn it over to Fady who will provide a review of our financial performance and key financial metrics.

Fady Kiama

Thank you, Frank, and thank you all for joining us. I will start off by providing a review of the key financial metrics for the fourth quarter of 2013 followed by a review of the key financial metrics for the full year.

During the fourth quarter of 2013, we had consolidated revenues of $113 million representing a 27% increase over the same period last year. We had EBITDA of $66 million representing a 74% increase over the same period last year. We had net income of $49 million representing an 88% increase over the same period last year and EBITDA and net income margins were 58.4% and 43.4% respectively.

During the fourth quarter of 2013 compared to 42.7% and 29.2% respectively during the same period last year. During the full year of 2013, we had consolidated revenues of $428 million representing a 90% increase over 2012. We had EBITDA of $215 million representing 183% increase over 2012. We had net income of $154 million representing 196% increase over 2012 and EBITDA and net income margins were 50.2% and 36% respectively during 2013 compared to 33.8% and 23.1% respectively during 2012. As of December 31, 2013, our total debt outstanding was $399 million.

Let’s move now to fourth quarter 2013 distribution. Based on the results of the three months ended December 31, 2013, the Board of Directors had approved a cash distribution of $0.61 per common unit. The record rate for the cash distribution is March 31, 2014, and the payment date will be April 7, 2014. It is important to note that the amount of our subsequent quarterly distributions will vary depended on our future earnings as well as our cash requirement for working capital and CapEx expenditures.

Now let’s move on to annual guidance, I would like this opportunity to provide you with our annual distribution guidance for the calendar year 2014. We expect to distribute between $2 and $2.2 per common unit for the calendar year 2014. The mid-point of the expected distribution range of $2.1 per unit is based on an assumed average cost of natural gas of $4.68 per Mmbtu and assumed average methanol selling price of $489 per metric ton and an assumed ammonia selling price of $500 per metric ton.

It is also based on forecasted sales volumes of 602 kilo tons and 244 kilo tons of methanol and ammonia respectively. These forecasted sales volumes take into account 13 days of unplanned downtime in addition to the 14 days of unplanned downtime that have occurred during the first quarter. This is in addition to the 40 days of planned downtime for the debottlenecking project and turnarounds.

Let me note that during the first quarter of 2014, we experienced 14 days of unplanned downtime and as you’d expect higher mature debt prices due to seasonal demand driven by the harsh winter conditions in the U.S. As a result, we expect that our distribution for the first quarter of 2014 will be somewhat lower than our initial distribution but in line with the distribution guidance for the calendar year 2014; I just gave you an idea about.

Thank you again for joining us. We will now open for questions.

Frank Bakker

Hello?

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of PJ Juvekar. Please state your firm or company name. Your line is open.

Dan Juster – Citi

Hey good morning this is actually Dan Juster on for PJ. So could we just talk a little bit more about your guidance, I guess first do you do any hedging for your natural gas, just trying to get a sense of where you’re getting the 4.68 million Btu price forecast for 2014.

And then in terms of operating rates that 40 days of downtime in the fourth quarter is starting in the first quarter of 2015 is that going to be – you are going to be running at a 100% operating rate after that? Thank you.

Frank Bakker

Okay. Let me first address the first question on the hedging strategy. At this moment, we don’t do hedging. So our natural gas price is actually daily priced and that’s based on using sub-channel. And we are exploring at this moment different options for hedging.

With respect to the second question on the operating rate, that will be 100% in 2015. So we will complete our debottlenecking project end of or in quarter four of this year. And then methanol capacity will increase 25% and ammonia 15%. And there should be a full rate beginning or end of this year.

Dan Juster – Citi

Okay. Thank you. And then just one other quick on the ammonia storage tank which you purchased, maybe could you just walk through what kind of optionality this provides in terms of different selling channels and will this allow you to build up capacity or product in advance of the downtime in the fourth quarter? Thank you.

Frank Bakker

The advantage of the additional ammonia tank is that we will have additional ammonia storage capacity. And this ammonia tank will also allow us to different distribution channels. So we are planning to install ammonia truck loading, ammonia rail loading and also gives us the option to connect underground pipeline.

Dan Juster – Citi

Great. Thank you very much.

Frank Bakker

You are welcome.

Operator

And your next question comes from the line of Aleksey Yefremov. Please state your firm or company name. Your line is open. Aleksey Yefremov your line is open.

Aleksey Yefremov – Bank of America Merrill Lynch

Good morning. This is Aleksey Yefremov from Bank of America Merrill Lynch. I have got two follow up from your comments (indiscernible) supply from Trinidad, have you seen any change so far this year in terms of more supply from Trinidad being available in U.S. or (indiscernible)?

Frank Bakker

Yes. What we have seen in the first couple of months is that the gas curtailment in Trinidad continues. They are in a range of 10%, 15%.

Aleksey Yefremov – Bank of America Merrill Lynch

Similar change. Thank you. And then maybe on the question on your operations, I guess sounds like (indiscernible) in Q1 and if there was some in the past as well. If there is anything it can be in terms of maybe investing additional equipment or doing additional maintenance to sort of support the liability of your plan?

Frank Bakker

Yes. What we are doing is that during our debottlenecking project, turnaround project in quarter four, we will replace several pieces of equipment which has caused this downtime to occur. And so –

Aleksey Yefremov – Bank of America Merrill Lynch

Great. Thanks a lot.

Frank Bakker

Yes. You are welcome.

Operator

And your next question comes from the line of (indiscernible). Please state your firm or company name. Your line is open.

Unidentified Analyst

(indiscernible) Consulting. Thank you, Frank and Fady for the informative update. With regard to the upcoming shutdown in Q4, Fady, you mentioned the effect on the distribution, do you have any forecast or how this shutdown will affect the net income?

Fady Kiama

Okay. What we discussed the shutdown now would occur totally in Q4 rather than partially in Q3 and in Q4. That would mean that we expect Q3 to be a high quarter now compared to our initial focus, would add quarter four – would be lower than our initial quarter. But then, we remain with our total guidance for distribution as we spoke few minutes ago between 2 and 2.2.

Unidentified Analyst

Okay. Thank you, sir. Also do you expect to seek any new financing in the foreseeable future?

Fady Kiama

Right now. We already announced that – we did a refinancing of the intercompany debt in quarter four. We already announced that we don’t seek right now; we don’t foresee any need for any additional debt. But again, the situation would keep on – monitor the situation on a daily basis, and then if there is any need or change to the situation we will announce that on a timely basis.

Unidentified Analyst

Okay. Thank you, sir. And one final question, do you anticipate holding a shareholders’ meeting at any point?

Fady Kiama

No. We don’t foresee that.

Unidentified Analyst

Okay. Thank you.

Operator

And your next question comes from the line of Lin Shen. Please state your firm or company name. Your line is open.

Matt Niblack – HITE Edge

This is actually Matt Niblack for Lin with HITE Edge. Just a question on the natural gas guidance, is the number you quote there, a benchmark number or your actual purchase cost?

Fady Kiama

The 468 is a forecast that based on certain market reports for 2014.

Matt Niblack – HITE Edge

Right. But is that, just clarify earlier comment is that a forecast for Henry Hub, or is that a forecast for your actual cost of purchase?

Fady Kiama

No. It’s a forecast of our actual cost to purchase.

Matt Niblack – HITE Edge

Okay. And how do we think about your cost of purchase versus Henry Hub or are using sub-channel?

Frank Bakker

Yes. If you compare using sub-channel gas price and you compare it to (indiscernible) hope there is a slight difference, I believe it’s like $0.10. The difference is not that big. It varies over the year also. Our natural gas –

Matt Niblack – HITE Edge

So we can think if you price is being exactly the using sub-channel?

Frank Bakker

Yes. That’s correct.

Matt Niblack – HITE Edge

Okay. Thank you.

Operator

And your next question comes from the line of Michael Sheridan. Please state your firm or company name. Your line is open.

Michael Sheridan – Longbow Capital Partners

Longbow Capital Partners. Good morning. How are you?

Frank Bakker

Good morning.

Michael Sheridan – Longbow Capital Partners

Just two questions, I wondered if you could quantify the cost per EBITDA, I believe 14 days of downtime in Q4. And then if you could just discuss kind of a little more fully the driver of the 13 days of downtime in Q1. Thank you.

Fady Kiama

Okay. For Q1, we had around $1.5 million of cost of repair to fixed rate issue. And then we have around $8 million of loss EBITDA due to the loss volume. So all in all, I would say around $10 million in total loss.

Michael Sheridan – Longbow Capital Partners

In Q4?

Fady Kiama

This is for Q1, Q1 2015.

Michael Sheridan – Longbow Capital Partners

For Q1. And what specifically is the issue driving the downtime?

Frank Bakker

Yes. I can comment on that. We have an electrical power failure that caused the plant to shutdown. And then we kept the plant down to repair two pieces of equipment to make sure it’s reliable and actually improve the reliability. So that we can run reliable until we shut down for the big turnaround end of this year.

Michael Sheridan – Longbow Capital Partners

Thank you very much.

Frank Bakker

You are welcome.

Operator

And your next question comes from the line of Robert Tucker. Please state your firm or company name. Your line is open.

Robert Becker – Keeley Asset Management

Yes. It’s Robert Becker with Keeley Asset Management. On the original offering, I’m trying to recall, you mention that had you completed the debottlenecking in the third quarter that in the fourth quarter there could be, as there was income or distribution $0.80 range, if that’s true then what I assume, I’m trying to figure how we would assume pushing that number forward to say the first quarter of 2015 and part of that question is, is there a seasonal aspect to your business quarter-by-quarter, or is it pretty much even ex debottlenecking and say weather issues?

Frank Bakker

If you look at that two products and ammonia, there is a seasonal aspect related to the plant being up to growth. And with methanol it’s more or less stable especially in our case because we sell 60%, 70% of our methanol is actually sold by pipeline and those plants run continuously throughout the…

Robert Becker – Keeley Asset Management

Okay. And then one other aspect, you have related operation, I don’t know if you care to comment your parent company is completing a fertilizer plant apparently in Iowa, would you care to comment on how that project is coming along?

Frank Bakker

Now, I rather refer to OCI N.V. for that project but my understanding it’s completely on schedule as communicated.

Robert Becker – Keeley Asset Management

Okay. Thank you.

Operator

And the next question comes from the line of [indiscernible]. Please state your firm or company name. Your line is open.

Unidentified Analyst

Thank you. The question I had for change of plant at Iowa so it’s already been addressed. Thank you.

Frank Bakker

Okay.

Operator

(Operator Instructions). And your next question comes from the line of (indiscernible). Please state your firm or company name. Your line is open.

Unidentified Analyst

(indiscernible). First question was, I think you said you had 14 days of downtime in the first quarter and you have another 13 planned for the rest of the year over and above the 40 days in the fourth quarter. Just curious as to the thinking behind the incremental 13 days of unplanned downtime please. I have a couple other questions.

Frank Bakker

Yes. So what we put in your focus is that we anticipate another 13 days of unplanned downtime that might happen or might not happen, it’s just you need to put in some downtime which will occur during the year.

Unidentified Analyst

Great. Yes, go ahead.

Frank Bakker

Depends how the plants, what we do in our forecasting we did plants run at 95% onstream time.

Unidentified Analyst

Okay, great. Could you help me a little bit with the sensitivity with regards to commodity prices both the inputs and the outputs of methanol ammonia and nat gas in 2014? I understand that changes a little bit in 2015 with the – I guess more efficient utilization of natural gas and the larger capacity in 2015?

Frank Bakker

Yes. So…

Unidentified Analyst

If the DCF was X and methanol was $50 higher or ammonia was $50 higher and if nat gas was $0.50 lower, I would love to get those numbers for both 2014 and 2015 please.

Frank Bakker

Okay. At this moment, if you ask $1 natural gas price increase, that will get $30 million impact on the cost for the product to make it. If you had an increase of $50 per metric ton of methanol, then the impact will be $50 multiplied by 0.85 by the number of tons of methanol.

Unidentified Analyst

Okay. And how does it change next year with the increased efficiency of the nat gas consumption? Is it pretty low?

Frank Bakker

Yes, like it stays about $13 million on a favorable cost.

Unidentified Analyst

Okay. On the new tonnage, is that right on the new volumes?

Frank Bakker

Yes.

Unidentified Analyst

Okay, great.

Frank Bakker

Yes, it’s correct. Yes.

Unidentified Analyst

And would you venture a guess, or an estimate of your DCF in 2015 given the plant would have been upgraded by then, and you possibly may have more normalized operating levels meaning you won’t have the downtime with regards to the debottlenecking and possibly the event that occurred in 1Q?

Fady Kiama

As we explained before, we would expect a 25% increase in volume for methanol and 15% increase in volume for ammonia. But we wouldn’t comment on valuation for now. You can refer back to our IR Director for this.

Unidentified Analyst

Okay. Thank you.

Operator

And there are no further questions at this time. I’ll turn the call back over to the presenters.

Frank Bakker

Okay. I’d like to thank everybody for their attention and attending this call.

Operator

And this concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: OCI Partners' CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts