OCI Partners LP
Director of IR: Omar Darwazah
WSA: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Omar Darwazah, the Director of Investor Relations and Strategy for OCI Partners LP. The company trades on the New York Stock Exchange and the ticker symbol is OCIP. Thanks for joining us again Omar.
Omar Darwazah: Thanks Juan.
WSA: Yeah it’s great having you on. Now, starting off please give us a history and overview of the company for some of our listeners that might have not caught our previous interview?
Omar Darwazah: Sure. OCI partners is a master limited partnership traded on the New York stock exchange. We’ve been publically traded since October of 2013 and the partnership owns and operates an integrated methanol and ammonia facility down in Beaumont, Texas. The facility has a total methanol annual capacity of 912,500 metric tons and also has an ammonia capacity of about 331,000 metric tons annually. And for our new listeners we actually underwent an upgrade of the facility earlier this year and increased our capacity on both lines by about 25% and we completed that project back in April- that’s sort of a brief history of the company. Our parent and sponsor company is OCI N.V., which is listed on the AEX Amsterdam. OCI N.V. has also recently announced that it has entered into a definitive agreement to combine its North American; it’s European and global distribution businesses with CF Industries. So, ultimately upon completion of the transaction, which is expected sometime in the first half of next year, OCI partners will have a new sponsor instead of OCI N.V., which is going to be CF.
WSA: Great and so can you bring us up to speed on some of the, you know recent results for the Q3 and the key drivers?
Omar Darwazah: During the the third quarter earnings we announced a quarterly distribution per unit of about 41 cents. We had actually been on a hiatus, not paying distributions for about two quarters as we set the time to complete the project of the upgrade and we obviously had to take the facility down. So, we’re now back to seeing distributions, we also announced a run rate distribution of about 40 cents a quarter moving forward and these are based on assumptions that we’ve delineated in our earnings announcement that was done for the third quarter last week.
WSA: And so in terms of you know your parent company and some of the other deals there can you, you know talk about the agreement or I guess you’ve briefly mentioned it with you know CF Industries and you know some of the you know details there?
Omar Darwazah: I would certainly defer these questions to the parent company directly, but what I can tell you is that ultimately once there is a change in sponsor to CF that will be beneficial for the partnership given CF’s massive distribution platform in the United States.. Overall, the partnership should be positioned to benefit from switching the sponsor. However, you know I would differ most of the details on the transactions set directly to the parent company, which obviously will be able to elaborate further on the mechanics and details of the transaction.
WSA: Yeah, for sure appreciated, and can you go over some of the key trends that you are seeing right now in the sector and talk about how the company is continuing to capitalize?
Omar Darwazah: Sure. We’ve seen quite a volatile commodity price environment that obviously most of your listeners are aware of. We’ve seen crude oil prices come down significantly during the latter part of last year and also to a certain extend this year as well. That unfortunately dragged down methanol process, along with other commodities that methanol is used as a raw material such as olefins, which today are the biggest driver for methanol demand in the short to medium term. Our expectation is that in China three-million tons of new MTO, Methanol to Olefin capacity is expected to commission from now until the second quarter of next year and that’s expected to add approximately nine million metric tons of new incremental merchant methanol demand. And if you look at the global markets we’re looking at a market of let’s say anywhere from 70 to 80 million tons of annual demands and nine million tons is obviously quite a sizable addition to the existing demand in the market.
So we expect the olefin story in China coupled with the gasoline blending story not only in China but also Israel, Australia and other countries around the world to be the biggest demand drivers for methanol demand in the short to medium term. The expectation is that we would see the market really start to move from a supply driven market to a demand driven market as this incremental demand starts to hit the market itself. So, I would keep an eye out on what’s going on in China from a macro perspective and also specifically on the olefin front and the gasoline blending front.
On ammonia we’ve seen prices actually hold up pretty firmly during the summer months, which is typically, from a seasonal perspective, where demand is lowest. We’ve seen prices or expect prices to start edging up during the fourth quarter and into the first quarter as buying for the fall application season commences. Today we’ve seen as a function of the warm weather that we’ve experienced across the US during the fourth quarter, we’ve seen a lot of that buying delayed until weather conditions improved. So that expectation is that once we see an improvement in weather conditions, we should see a flurry of demand from farmers for ammonia specifically ahead of the fall application season.
WSA: Right and what are some of the factors that you feel makes OCIP unique from some of the players in the sector?
Omar Darwazah: We happen to be the only methanol master limited partnership out there as some of your listeners are aware. The IRS proposed some potential regulatory changes surrounding MLPs earlier this year. I actually testified at the IRS [hearing] towards the end of October to make a case as to why methanol should remain a qualifying income for MLP purposes. Obviously we have yet to hear back from the IRS and it’s going to be a process, but in essence whichever way you look at it I think the fact that we’re the only methanol MLP in existence. has some some sort of competitive advantage. MLPs attract a certain type of investor who is looking for a yield and is looking for a security that pays significant cash and we are the only methanol company out there positioned to benefit from a recovery in the commodity price environment in the context of being an MLP structure.
Secondly, OCI Beaumont is a poster child transaction for OCI, our sponsor company. This was a company that was acquired – that we acquired back in 2011. It was idle; it was sitting on the previous owners books completely nonperforming and not really generating any returns. We as a company made a very good call on the Shale Gas story in the United States back in 2010, 2011 and recognized that we’re going to be in a very low natural gas environment for quite some time and our call was right on the money. I mean today if you look at where natural gas prices are trading, we’re trading at three year time lows. This is great for our costs since natural gas is a raw material.
So OCI Beaumont, to go back to your question, is a great example of us making a call on the natural gas industry in the US. It is also shows that we positioned ourselves earlier than most of our peers, ultimately purchasing this asset in the form of a Brownfield investing significant amount of CAPEX to rehabilitate it, got it up and running and then IPOed it. So, again it’s a poster child transaction for OCI and again it’s an example of how we create value to our shareholders.
WSA: Certainly, so what key goals and milestones are you hoping to accomplish over the course of the next six to twelve months?
Omar Darwazah: Well, for the next six to twelve months I mean since we are a commodity play business, obviously we all keep our fingers crossed that we start seeing a recovery and an improvement in the pricing environment in for both ammonia and methanol. That’s the expectation for methanol going into 2016. Ammonia pricing runs a seasonal course every year. From an operations perspective, we are in a much better place. We spent north of a $100 million during the course of the year to improve the reliability and also spent a considerable amount of capital to ensure that we’re environmentally compliant. So, I think from an operational perspective the goal is to run this facility at the highest equalization rates possible, so that we can squeeze as much volume from the plants and ultimately pay our unit holders as much distribution as possible. Obviously, there is so much that we can do when it comes to commodity pricing, we’re price takers. At least on an operational front we can do our best to ensure the plant is running as smoothly and as efficiently as possible.
WSA: Well, great and so are there any value drivers there that you wish investors perhaps you know better understood about you guys?
Omar Darwazah: Today, I think for most people today trying to understand methanol ultimately means trying to understand the olefin business. So, I would highly suggest that perspective unit holders or interested investors or listeners to go ahead and not only learn about methanol but to go a step further and understand a bit more the olefin markets specifically in China. Understanding the olefin industry in Chinatoday is extremely important in determining where the methanol pricing will be in the future. So, that’s sort of the one recommendation that I have in understanding or trying to understand the underlying dynamics in the methanol space.
WSA: Great, so once again joining us today is Omar Darwazah, the Director of Investor Relations and Strategy for OCI Partners LP and the company trades on the New York stock exchange, ticker symbol is OCIP, and before we conclude here to recap some of your key points, why do believe investors should consider the company as a good investment opportunity today?
Omar Darwazah: Investors looking at the company today I would say are looking at the pretty opportune and interesting time by virtue of the volatility that we’ve witnessed in commodity markets over the last 24 months. I believe methanol prices are set to rebound from here. Secondly as I sort of also alluded to earlier we’re expecting a rebound in ammonia pricing on the back of seasonal demand ahead of the fall application season. That will obviously be beneficial for us from a cash generation perspective for the partnership. Finally this low natural gas pricing environment is obviously extremely competitive for us from a feedstock perspective. So, that again will allow us to expand our margins moving forward Also noteworthy is the fact that there is an outstanding transaction on the business and there will be a switch in the sponsor sometime in the first half of next year and that should ultimately bode well for the partnership moving forward as well.
WSA: Great, so OCIP ones again trades on the New York stock exchange symbol OCIP, currently trading at 954 a share, market cap is worth of a 120 million and we would like to thank you for taking the time to join us today Omar and update our and update our investor audience on you guys. It’s always good to have you on.
Omar Darwazah: Great. Thanks again Juan and it’s always good to speak to you and to you know our listeners.