OCI Partners LP (OCIP) CEO Frank Bakker on Q2 2014 Results - Earnings Call Transcript

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 |  About: OCI Partners, LP (OCIP)
by: SA Transcripts

OCI Partners LP (NYSE:OCIP)

Q2 2014 Earnings Conference Call

August 12, 2014 03:00 PM ET

Executives

Frank Bakker - President and CEO

Fady Kiama - VP and CFO

Omar Darwazah - Director, IR

Analysts

Dan Jester

Operator

Good afternoon. My name is Sheryl. And I will be your conference operator today. At this time, I would like to welcome everyone to the OCIP Second Quarter 2014 Results. 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.

Mr. Frank Bakker, you may begin your conference.

Frank Bakker

Good afternoon everyone and thank you for joining us on our 2014 second quarter earnings call. I will provide an update on our business and our debottlenecking project. After that, our Chief Financial Officer, Fady Kiama will follow with a presentation on the financial highlights for the second quarter and finally our Investor Relations Director, Omar Darwazah, will follow with an update on the global methanol and ammonia market.

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

We will also include references 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. With respect to our business, I will provide commentary on the four factors that directly affect our financial results. These are our capacity utilization, our sales volumes, our selling prices of ammonia, methanol and natural gas prices.

Let me start with an overview of our capacity utilization. We had an excellent quarter with respect to our operations. During the second quarter of 2014, our facility ran uninterrupted with no unplanned downtime. Our methanol and ammonia production line ran at capacity utilization rates of 98% and 112%, respectively, during the quarter as compared to capacity utilization rates of 94% and 97%, respectively, during the same period last year. Our ammonia production line generated a robust utilization rate during the quarter as a result of repairs undertaken during the first quarter.

On the sales side, we realized the following during the quarter. Our average methanol sales price increased by 6% rising to $470 per metric ton in the second quarter of 2014 compared to $443 per metric ton in the second quarter of 2013. We sold approximately 161,600 metric tons of produced methanol compared to 169,500 metric tons during the same period last year. We also sold approximately 73,200 metric tons of ammonia compared to 50,700 metric tons during the same period last year, which represents a 31% increase in ammonia sales volumes coupled with a 10% decrease in average ammonia sales price declining to $512 per metric ton in the second quarter of 2014 compared to $570 per metric ton in the second quarter of 2013.

On the cost side of our purchase price for natural gas increased to an average of $4.66 per MMBtu during the second quarter of 2014 as compared to an average of $4.20 per MMBtu during the same period last year, representing an increase of 11%. The increase was attributable to the extreme cold weather in the U.S. causing an increase in demand and the reduction is supply reserves. Compared to last quarter, our purchase price for natural gas decreased by 8%.

Our debottlenecking project that is expected to increase our facility’s methanol and ammonia production lines capacity by 25% and 50% respectively is on track to be completed during the fourth quarter of 2014. As of the end of the second quarter, we incurred approximately $106 million in expenditures related to the project. We received our TCEQ permit on July 22, 2014 and our EPA permit on August 1, 2014. These are our important milestones in the overall progress of the project.

The current estimate to complete the debottlenecking project and the turnaround has increased by $50 million to $60 million to a total of $220 million to $230 million. We also currently expect to shut down our methanol and ammonia production lines for approximately 48 days and 28 days, respectively, to complete the plant upgrade and turnaround. The partnership has available committed subordinated debt and/or equity financing facilities from its sponsor, OCI N.V., to fund the completion of the overall project.

This concludes the business update. 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 provide a review of the key financial metrics on the second quarter of 2014. During the second quarter of 2014, we had consolidated revenues of $113 million representing a 6% increase over the same period last year. We had EBITDA of $52 million representing a 4% increase over the same period last year. We had net income of 41 million representing 14% increase over the same period last year and EBITDA net income margins were 46% and 36% respectively during the second quarter of 2014, compared to 47% and 33% respectively during the same period last year.

As of June 30, 2014, our total debt outstanding was $397 million. Based on the results of the three months ended June 30, 2014, our Board of Directors have approved the cash distribution of $0.48 per common unit. The update for the cash distribution is August 22nd and the payment debt would be August 28th. It’s important to note that the amount of our subsequent quarterly distributions will vary depending on our future earning as well as our cash requirements for working capital and capital expenditures.

Finally I would like to use this opportunity to update our annual distribution guidance for the calendar year, 2014. As a result of change in methanol and ammonia price expectations, low expected methanol sales volumes, offset in part by a reduction in expected natural gas prices, we are revising our guidance for distributions with respect to operations in 2014 to approximately $1.40 to $1.60 per unit, from our given guidance of $2 per unit.

Guidance at the midpoint of the range is based on an assumed average cost of natural gas of $4.07 per MMBTU and assumed average methanol selling price of $390 per the metric ton and an assumed average ammonia selling price of $509,000 dollars per metric ton, each during the six months period of July 2014 to December 2014.

Our revised guidance for 2014 is also based on forecasted annual sales volumes of 569 kilo metric tons of methanol and 239 kilo metrics tons of ammonia. The forecasted sales volumes take into account the weather related unplanned downtime of six days July, in addition to the 48 days and 28 days of planned downtime for the methanol and ammonia production lines respectively during the debottlenecking project and turnarounds.

This concludes an update on our financial performance and key financial metrics. I would now turn to Omar, who will provide you with an update on the global methanol and ammonia markets.

Omar Darwazah

Thank you Frank and Fady and thank you all again for joining us today. I'd like to update an update on the global ammonia and methanol markets as well as our expectations for pricing for the remainder of the year. On the ammonia market, Tampa CFR July contract price fell from its high of $580 in May to settle at $520 for July. The recent softness in the ammonia market has been primarily attributable to weakness in the nitrogen fertilizer markets and the caprolactam markets. For the remainder the year however, we expect ammonia prices to rebound as demand increases ahead of the fall and spring planting, agricultural seasons.

In addition, we believe that the market has yet to fully absorb events in the Ukraine, the global marginal cost producer and single largest ammonia exporter. We expect to see higher local natural gas prices and limited domestic production in the country and both should drive global prices moving forward. Finally continuing gas supply and production issues in Egypt and Libya could also reduce the level of exports to the international markets and consequently support price increases.

On the methanol markets, prices have been slow to recover on the back of healthy production globally. Prices in China continue to find the bottom as Chinese year-to-date production performance suggests that the country will produce over 35 million metric tons of methanol this up from 29 million metric tons last year.

However we do expect China to remain a net importer of approximately 5 million metric tons of methanol predominantly coming from Iran, Malaysia and the Middle East as new Chinese MTO/MTP capacity is commissioned during the second half of the year. A large proportion of this new olefin capacity will rely on the merchant methanol market for its raw material needs and as a result will generate significant methanol demand in the market.

We also expect the Chinese government to continue to pilot additional programs in various provinces around the country to allow for more methanol blending and gasoline as this practice has been fast and effective in reducing pollution levels. Direct methanol blending gasoline has also gained momentum in several other countries around the world such as Israel and Australia.

In the United States, demand for methanol is expected to increase during the second half of this year on the back of higher formaldehyde demand spurred from a more active construction sector. In Trinidad, natural gas supply curtailments have reduced the country’s overall methanol production operating rates by approximately 15% since June. We expect further curtailments in natural gas supply in August and September, which should help support global methanol prices as exports from the country continued to decline.

Finally in the United Kingdom, recent changes in legislation state that starting April 1, 2015, the British government will apply a reduced rate of fuel duty to methanol, which will be maintained until March 2024. We believe that this is a positive development for increased demand prospects for the methanol industry and signifies a growing global trend of methanol usage as an alternative fuel or fuel blend.

Overall, we feel comfortable with the industry dynamics for both methanol and ammonia for the second half of this year and we expect methanol prices to rise on the back of stronger demand for MTO production in China and higher levels of methanol blending in gasoline. We also expect ammonia prices to rise on the back of higher demand for the product ahead of the fall and spring planting agriculture seasons as well as an improved industrial demand for the product globally.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of PJ Juvekar. Your line is open.

Dan Jester

Good afternoon every one, this is Dan Jester on for PJ. I guess Frank maybe you can talk a little bit more about the cost inflation you’re seeing on your expansion project and maybe can you talk about what’s specifically is driving that $50 million to $60 million of incremental spending?

Frank Bakker

Okay, I can do that. There are several reasons for a cost overrun. What we have seen is that we need to do additional repairs during the turnaround to make sure that we have reliable plant and what we have all seen as an increase in scope of work to be done for the debottlenecking project and also we’ve seen that we need to accelerate the project to make sure that we can execute in quarter four of this year. So all that adds up to about $50 million to $60 million.

Dan Jester

Okay thank you that’s helpful. And then on your guidance for methanol pricing for the second half of this year, it seems like you’re looking at $390 per metric ton price, which I think is relatively close to where current spot market prices are in the U.S. Gulf. So can you be kind of just square that with the comments that you made that the methanol market is pretty healthy? It seems like your guidance isn’t expecting much of a recovery on the price side but your comments on supply demand seemed pretty positive. So can you just walk me through what you’re thinking on that? Thank you.

Frank Bakker

Yes, Omar will comment.

Omar Darwazah

Hi, Dan, it’s Omar here. So our expectations of methanol prices will rebound as I sort of alluded to based on increased demand for olefins in China that do not have a captive methanol line, but the reason why we have a conservative figure in -- for our estimates is one is one, we are required to use publications unfortunately to benchmark our pricing and two, at this point in time we are trading slightly higher than the $390, around the $410, $415 level. So $390, we feel at least based on where we are today is conservative yes, but again we'd rather err on the side of conservatism at this point for the remainder of the year. However all things point a rebound in methanol prices as the market has been sort of touching the bottom and trying to find the bottom based on what has been going on in China. So at this point in time we would obviously rather beat our guidance, the guidance that we have just provided here than overestimate what we will be doing for the remainder of the year. But again that specific price, the $390 is actually coming from publications that we were required to use.

Operator

And our next question comes from the line of Hassan Ahmad [ph]. Your line is open.

Unidentified Analyst

Just wanted to sort of continue on the pricing question and maybe Omar this is for you, but like you rightly said, I take a look at -- Methanex has posted prices non-discounted and they have pretty steady in July and August at $482 a ton, and if I sort of apply the typical discount rate of 15%, that essentially implies $410 a ton for July and August. Now that is in turn would mean that you guys are looking for a sort of September through December average price of around $381 a ton. So maybe $30 a ton decline from July and August level. So if I understand it correctly you guys are as you said earlier been super conservative?

Omar Darwazah

Hassan, you’re absolutely right. I mean you pretty much restated my earlier discussion with Dan with quite nicely. At the end of the day, you’re absolutely right in saying that we -- this is a conservative price and we have been using publications to be able to base our guidance for the remainder of the year, but we have obviously been following Methanex's prices very closely. And as we’re aligned with them in our thinking that prices from here on should start to rebound and obviously we are going to be looking very carefully what Methanex does for the month of September and hopefully there will be signs of upside from here on.

But again, we feel more comfortable with the fundamentals. We feel more comfortable with the fact that China is going to be a key in generating incremental additional demand on the back of this olefin capacity that does not have a captive methanol line. I think the market has yet to understand and has yet to sort of factor that into the pricing. And on a recent trip there I recognized that methanol blending and gasoline is now here to stay in China. It’s going to be extremely -- much more pervasive across the country. The government has been piloting in several provinces but they will be pushing it around the country as well. And the interesting part is that none of the people that I met could actually quantify what that could mean for the industry, which means that there could be very, very positive upside hidden in the way the country blends methanol and gasoline. So this is two sort of important demand drivers that we should keep an eye out for in the next six to eight months.

Unidentified Analyst

And again we're beginning to see some buoyancy in Asian sort of spot methanol prices. At $350, $360 a ton my guess would be marginal production costs are closer to $420, $430. So are you seeing any capacity rationalization out in Asia, in China in particular?

Omar Darwazah

That’s actually a great question. As you probably know 80% of the market in China today is dominated by coal producing methanol producers who use coal and about 20% use expensive natural gas. You're absolutely right in saying the marginal cost of production for a typical coal-based producer is around $350 to $360 level and the natural gas producers with $8 to $9 per MMBtu gas are in the ordinance of $400 to $410.

Now as you probably know, the tricky part about China is that there is always a certain number or certain percentage of the market that operates with losses and they continue to burn cash because for them, it’s cheaper to run with these losses than simply shutdown and try to restart once prices rebound. So you're right in saying that this capacity rationalization unfortunately isn’t as pervasive as it should be in China. But again, if we believe that this is going to be a demand driven market, then at the end of the day, the marginal cost of production in China, it be at the gas level or at the coal level should be less and less relevant. But those two price points are extremely important that you mentioned, and we feel at this point in time, given recent developments in China pertaining to the demand drivers and the fact that at $350 level there is a portion of the market that‘s not making money in China, prices should then start to increase.

Unidentified Analyst

And one final one if I may. Obviously you talked a bit about capital cost inflation, roughly sort of 30% higher capital cost associated with the debottlenecking. And obviously these are early, early days in terms of -- there seems to be a fair number of be it methanol or other chemical and non- chemical projects that are expected to come on stream over the next couple of years. My question is where do you feel replacement value for methanol fits currently and as this sort of wave call it of projects starts coming online and more capital cost inflation kicks in, where do you see it going, be it on a dollar per ton basis?

Frank Bakker

Yes. Our estimate at this moment is $1,000 per ton.

Unidentified Analyst

And you still feel that there is enough leg room for further inflation.

Omar Darwazah

Absolutely I can jump here, Hassan. I think at the end of the day as you can probably tell, it becomes extremely difficult for either ammonia or methanol producers and we saw this in the ammonia market. We’ve seen every single blue chip player cancel their projects because of costs going out of control.

So this is going to be a recurring theme and as Frank mentioned earlier, we're seeing labor inflation, we are seeing building materials inflation and this is again on the back of the U.S. economy recovery, which ironically actually bodes well for methanol prices as well at some point once that filters into the construction sector.

But I think in general you are going to see moving forward -- at least our expectations are that a lot of these projects, in terms of their final investment costs are going to be revised multiple times, if not cancelled altogether. We’ve seen that pervasively in the ammonia market, we’ve seen some of our competitors delay their projects by six months to a year, even two years and this to us sounds like projects that might actually get -- end up getting cancelled because costs cannot be properly estimated.

So this is an interesting -- this is an interesting time in the market with players trying to add capacity but mind you, it’s also important to note that even with our cost increases that we have today, this is still an extremely high IRR project based on current prices. So again, it ends up being prerogative or the discretion of these various Boards to decide whether to feel comfortable with cost inflation of up to 30% during the life of the project and if they can add contingencies in there with the respected E&C contractors or engineering companies to be able to mitigate some of that cost or pass it on to them as opposed to just the contractor, then they might still end up having a very profitable project. But you are right I saying that these cost increases actually end up being a great barrier to entry into this industry. Yes, we can suffer from it a bit. Some other people can suffer from it, but it ends up being the survival of the fittest. And given the fact that we have an in-house construction business from the parent, we definitely have a much bigger leg forward over our competitors.

Operator

Thank you. And our next question comes from the line of Aatish Oberoi [ph]. Your line is open.

Unidentified Analyst

Fady, if I may can, you just walk me through sort of what the one-time costs were during this quarter that impacted the distribution? And when you look at the 2014 distribution I know there has been a number of exogenous events earlier in the year. If you were to strip out the exogenous events and the impact of the debottlenecking project, what would the normalized distribution be for 2014?

Fady Kiama

Okay, let me take one item at a time. So for Q2, I can see that we have couple of one timers that affected the distribution down by almost $0.10 per unit and those are basically around $6 million of debt related expenses that were related to the re-pricing of the term loan agreement and the signing of the revolver agreement that we had in April 2014. On top of that, we had like $1 million related to higher maintenance cost related to the thermal oxidizer in the plant in the quarter two.

So those items together add up to around $0.10. On top of that we -- as you know and as you have said, we are going to shut down the plant for 48 days for methanol and 28 day for ammonia. So we’re slowly, slowly or gradually building up our inventories to fill in the tanks to be able to continue selling almost as usual during those 48 days and 28 days. So our inventory at end of quarter two went up by $4 million versus that of Q1 March. If we end up -- and that around $0.05 more. So if you add up those three factors together, it's at around $0.14 of distribution per unit on top of the $0.48 that you are announcing that will take us to almost $0.62 per unit.

As far as quarter one is concerned, quarter one had a couple of other factors. We have a shutdown in January, February for quite an extensive period. As you know as well, gas prices were very high during that quarter due to the consecutive cold fronts that hit USA east and accordingly we suffered from that. So those were the two different sets of factors that hit or affected the distribution, whether in Q2 or in Q1.

Unidentified Analyst

Okay, can you quantify the quarter one impact?

Fady Kiama

We can come back to you on this. We can address it separately. I will take your email from Omar and then we can come back to you on this definitely.

Unidentified Analyst

Okay, that’s great. And then on the 2015 distribution, once the debottlenecking is done and you’re at a sort of normalized steady state run rate, if I look back at the IPO I think during the road show you guys mentioned that both debottlenecking you were expecting to do about $280 million of distributable cash flow and of course since then methanol prices have come down by about $35 a ton and nat gas has gone up by about $0.35 in MMBtu. So based on the sensitivity that you gave out, I think you arrive at a $220 million DCF for 2015, if you adjust those prices for methanol and nat gas. Is that the right ballpark when I look at it?

Fady Kiama

Well, it’s still too early to give any color on 2015 distribution as we’re starting the budget process for next year, but that figure seems to be, within the right range. However, I need to add here that we have announced already that we will having a sponsored financing facility to cover overrun of the project. The form of that facility has not been determined yet. So for example if it is going to be alone, there will be repayment and interest expenses that might affect distribution. If it is going to be an equity injection, then this effect will not be in place. So from an operational point of view what you’re seeing is that within in the right range but that we have to take into consideration the possible impact of the financing of the sponsor.

Unidentified Analyst

Great, one final one for Omar. Omar, I think you mentioned that prices in China are close to a bottom. Since I'm fairly new to the space I just want to understand what is your opinion on the where the methanol price is on its cycle?

Omar Darwazah

That’s a very good question. I think -- we've obviously seen since the IPO massive oscillations in volatility in methanol prices. We obviously saw during the fourth quarter an extremely rapid run up to prices to about $632 per ton which was Methanex’s posted price for few months at the end last year and even into this year. And most of us know what the reasons were. There were supply issues in Asia. There were MTO plants that were maintenance in China that couldn’t buy merchant methanol, bad weather in China et cetera, et cetera, et cetera. And hence Chinese imports during the first quarter were much slower. My personal feeling is if you are of the belief that we are seeing a general uptick in the global economy across the Board, especially in the United States, then we should be at a cycle where we’re definitely rebounding globally.

Right, so you’re seeing several interesting phenomenons. Methanol has now become a major fluid blend or a fuel alternative in many, many parts of the world and that’s gaining a lot of more traction then most people think. Secondly you are seeing general improvement in the macro economy globally, which means that that's going to filter straight into the construction sector, which should impact MTBE, which should impact for formaldehyde and other products that methanol uses, MMA, paint and resins.

So if you were to take my personal opinion, I believe that we're at a stage now where the market is going to start turning and is going to try to find a statistical level of pricing that’s not exorbitant, that’s not $632 posted price by Methanex and definitely won’t be in the low 300s, because again in the low 300s you have a significant amount of capacity in China that’s completely unprofitable.

As I alluded to earlier, there is obviously definitely a portion of the market that’s always producing and burning cash, very difficult to estimate what that level is. But again if there is going to be a demand driven cycle now on the back of the MTO demand and higher gasoline blending and an improvement in the global macroeconomic environment, then I believe that we are at the bottom of the cycle and now the market is going to start to find a statistical price that’s reasonable in nature.

Unidentified Analyst

And Frank just one for you. I think the original debottlenecking plan was for us to shut down the plant sometime right now and go through the debottlenecking. I'm just curious, why were the overruns and the CapEx -- sort of over budget CapEx discovered so late?

Frank Bakker

What we have seen is that engineering arrived late. So we recently received all the engineering. So at the moment we received engineering for construction we were able to revise our budget focus. So that’s the reason behind it.

Unidentified Analyst

And this is the engineering that the bank has to offer or just third-party contractors?

Frank Bakker

It’s third-party engineering.

Operator

And our next question comes from the line of Andy Gupta [ph]. Your line is open.

Unidentified Analyst

A couple of questions. The first one is given the volatility which we’ve seen, which obviously impacts you guys as well as customers, are you seeing an opportunity to perhaps change the structure of your contracts where either they are longer term or they are take or pay or there is some level of hedging where both parties are protected?

Frank Bakker

No, at this moment, we are not seeing any change in our sales contract or our strategy with respect to sales contracts. So all our sales contracts will be based on index-based pricing, that CFR Tampa for ammonia and the Jim Jordan weighted average contract price for methanol.

Unidentified Analyst

Understood. And my second question is related to more around any guidance towards or qualitative favor around de-risking sort of a single asset. MLP, do you see any opportunities for dropdowns of the parent or additional acquisitions at the MLP?

Omar Darwazah

This is Omar. I will sort of tackle that question. So I believe you also had asked about natural gas hedging. As the parent company, we are exploring various options to hedge a portion of our natural gas needs. This is something that’s still a work-in-progress and obviously if we arrive at a favorable setup and a contract with a counterparty in question, we will be sure to go ahead and execute that. So that’s the first thing.

And on the second question, absolutely, I'm not sure whether you follow the parent, but the parent is currently developing two Greenfield production facilities in the United States, an ammonia fertilizer complex and a diesel exhaust fluid complex in Wever, Iowa. That’s going to be commissioned in sometime next year and will be in full production by November or by the summer of 2015. So ultimately that could be a potential drop down candidate in the MLP.

Now of course the caveat here and it is important to note that we have yet as management of OCIP committed to doing something of that nature. However it’s important to bring it up and mention that this is part of our strategy. And then right next door here to us in Beaumont, the parent company is also building a 1.75 million ton methanol facility that will be commissioned at the end of 2016 and could be eligible for a dropdown into the MLP in 2017.

So in other words, we as the parent want to view this MLP as our growth vehicle for our North American Greenfield projects. I think you as an investor would appreciate as you had pointed out, de-risking the MLP by owning an MLP that sells five or six products versus simply two products. So this is something that we are fully cognizant of and we will be exploring very closely with the parent company in the next several years as their new facilities start to be commissioned.

Operator

Thank you. The next question comes from the line of Melinda Newman [ph]. Your line is open.

Unidentified Analyst

So when I look at the guidance you’ve given, it seems like basically there might not be distributions for the rest of the year and it seems like it’s the higher CapEx and my calculation is that you’ve got about $106 million or something like that left on the project and I know you have facilities in place with the parent to fund this and you it’s unclear whether it will be debt or equity. I want to confirm that if it is debt, that it is going to be subordinated to the term loan, I think that’s in the 10-Q. And then could you also clarify for me what the cash is at Beaumont versus the parent and to what extent you will use cash to fund this CapEx versus drawing on the OCI facilities? Thanks

Frank Bakker

Okay, let me try to tackle also one thing at a time. Yes, the guidance is $1.4 to $1.6 per unit for the operation of 2014. We are distributing $0.48 for Q2 and we are also planning to make another distribution in Q3 based on the way we see right now the forecast. So we should be having another distribution in quarter three.

Back to other point, yes, right now we do have around $150 million of cash to still be spent on the project till end of the year. As I said, we have all the facilities in place, acquired in place, whether debt or equity. If it is debt, it’s going come from the sponsor. If it is debt, it’s going to be at alternative debt to the current term loan agreement. If it is equity then that’s fine, there will be no issues. If it's going to debt, there might be some implications on the distributions for next year. But all the acquired facilities are in place. We will -- OCI as a sponsor will be taking a decision as to form of the financing, sometime I would say in October of this year.

Unidentified Analyst

Okay and can you comment on the cash, what’s at Beaumont versus what’s at OCI Partners? And how much you will use, to what extent you'll use the cash versus rely on these facilities?

Frank Bakker

You’re talking about two entities that are one and the same. So we are talking about a consolidated entity of OCI Partners that has OCI Beaumont in it. So there is no difference between the cash at OCI Beaumont or OCIP. What we report in OCIP consolidated, that income tax is also OCIB inter. And the current level of cash is around $110 million that we have right now. And as I said, we would be requiring a facility from OCI from the sponsor that has to determine whether it’s going to be equity or loan by October of this year.

Omar Darwazah

And Melinda, this is Omar. If I may, just to clarify for any lack of confusion. We have paid so far $0.89 this year. We’ve paid $0.41 in the first quarter. We declared and are about to pay $0.48 for the second quarter and based on our guidance of distribution that means we have about $0.71 left to distribute. So just to correct your initial statement just for the sake of…

Unidentified Analyst

[Indiscernible] there might have been something declared from the prior year that I was.

Omar Darwazah

No, no, not even, this is based from operations. So just to clarify, there are still more distributions coming this year. I just wanted to confirm that.

Operator

Thank you. Our next question comes from the line of Randy Selleck [ph]. Your line is open.

Unidentified Analyst

A few questions. First of all, what kind of confidence do you have that the increased cost or sort of the increased cost in that there won’t be any additional cost going forward, maybe you cold share with us how you estimated that? And how much confidence that you have that the debottlenecking will be completed by the end of the year? And then I have one more follow-up question.

Frank Bakker

Okay, so our current estimate is based on the information we have at this moment. So the current estimate is that we have $50 million, $60 million overall. And we are monitoring that actually on a daily basis. So we are pretty confident that it will stay within this range. And to come to the second question, if we want to execute the debottlenecking this year, we’re also monitoring that on a daily basis. And as the schedule looks at this moment, the information we have available at this moment, we should be starting up the units in December of this year.

Unidentified Analyst

Okay. Second question sort of relates to what somebody else asked on a prior question. The way I calculate it, if prices stay around here and you finish debottlenecking starting in 2015 your distributable cash could be as high as $3 a share, maybe little bit less maybe little bit more. What did you -- could repeat why -- it seeks like based on everything I’ve heard and calculated that that number makes a lot of sense. So tell us what could change that if the price stays here and you have in fact debottlenecked?

Frank Bakker

A couple of points here. I believe the $3 is way over -- the estimate that other people are talking about. So the estimate that had been given was 220 and so for EBITDA. But that’s EBITDA generation, but then you still have lots of debt service. You still have ongoing capital requirement that have to be offset from that figure. On top of those operational items as I said, the form of financing overrun has to be decided. So if it’s going to be equity injection, then there should be no implication on distribution. However, if it’s going to be or minimum implications on distribution; however, if it’s going to be debt financing then based on the terms of the debt financing, there will be repayments to the sponsors, there will be interest expense and those would affect or will affect the distributions. We should be expecting to come up with our next year guidance along with our quarter four release early next year.

Operator

Thank you. And our next question comes from the line of Christian Hoffman. Your line is open.

Unidentified Analyst

Can you remind me of the leverage levels for your bank covenants at the quarter end? [Indiscernible] what I might calculate?

Fady Kiama

As of December ‘14 the leverage ratio is 2:1 and then as of March 15 it goes down to 1.75:1.

Unidentified Analyst

I mean your actual levels, not the covenant.

Fady Kiama

Oh, I’m sorry. We are in the range right now of 1.4 to 1.5. So we are still way ahead of the requirement.

Unidentified Analyst

Got it. And you said October is likely the timing there will be some announcement on the financing?

Frank Bakker

Yes. Come October, we should have an agreement with OCI the sponsor as to the amount and the form of the financing.

Operator

(Operator Instructions).

The next question comes from the line of Aatish Oberoi [ph]. Your line is open.

Unidentified Analyst

Hey, guys. Just a quick follow up. Omar, you mentioned earlier in the call that you expected Chinese MTO/MTP demand to kick in later this year. Do you know specifically when that will kick in, which month?

Omar Darwazah

So based on and again we rely on market intelligence, the various publications out there and our contacts in China to let us know. Our understanding is that a lot of that capacity should be commissioned by December. But of course with many things in China you should take things with a grain of salt. We're saying instead of it being a four month timeline, we're talking about six to eight months where we are going to start to see that incremental capacity come into the market. So we might see some in December, some in March and some a bit later. And then of course in a very positive scenario, we would have all the planned MTO capacity that the Chinese intend to add commissioned by December. But again this is going to be a very favorable sort of scenario. But our sense is that it’s going to be dragged on into March or April of next year, so over the next six to eight months.

Unidentified Analyst

And can you just clarify why you need to build up the inventory of methanol before that, before the debottlenecking?

Frank Bakker

Yeah, because we have a lot of customers how are supplied by pipeline. So they have no other choice in getting methanol from us. So build up inventory so we can supply our customers.

Unidentified Analyst

And Frank, with regards to the CapEx overrun, I always thought that if -- given the fixed price nature of the contracts, any overruns would be borne by a contractor. Why is that not the case?

Frank Bakker

We have the time and material contract.

Operator

Thank you. Our next question comes from the line of Mark Harmon [ph]. Your line is open.

Unidentified Analyst

I am just a shareholder here and I have a just a quick question. I'm still not clear, I'm really sorry if you guided it, whether the next distribution will be for the entire -- let me say that again -- whether Q3 is going to be the last distribution of the year? I'm seeing that there would be at least a partial distribution in Q4 but I'm not hearing that answer real clear.

Frank Bakker

Okay. We are distributing $0.48 for Q2 and we are planning to make a distribution for Q3. That should be sometime in November and that should be it for 2014.

Unidentified Analyst

Okay. So whatever distribution is -- Q3 would be the last distribution. There will be no Q4 distribution and whatever Q3 is will include whatever cash flow there would have been from Q4 but you're not going to distribute anything in Q4, is that correct.

Frank Bakker

If there is any distribution for Q4, that will take place in 2015. So for 2014 as I said…

Unidentified Analyst

Oh, I see. Okay, I mean fiscal -- I mean fiscal quarter. I understand that the last distribution in calendar year 2014 would be Q3 but I mean are you going to have a Q4 distribution?

Frank Bakker

This has to be decided. Depending on of course the development and the pricing and at the same time, the completion of the project. So that will have to be decided at a later point of time.

Unidentified Analyst

Okay. I guess what I'm saying, though, is that you're not taking Q4 and saying -- no, we're not having a distribution. It's like any other quarter. We just have to deal with the downtime which we know of.

Frank Bakker

Exactly.

Operator

Thank you. And that concludes the questions at this time. I will now turn the call back over to the presenters.

Frank Bakker

Okay, I want to thank everybody for all the interest and questions and look forward to speaking you again on the next call.

Omar Darwazah

Thank you.

Operator

Ladies and gentlemen, this now concludes today’s conference call, you may disconnect.

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