President of Phoenix Park Gas Processors Ltd (PPGPL) Dominic Rampersad, says the company’s acquisition of Twin Eagle Liquids Marketing in Houston, Texas has a payback period of less than five years.
Twin Eagle markets, trades and transports natural gas liquids in Canada, US and Mexico via rail.
Phoenix Park Gas Processors paid US$17 million ($115.6 million) for the acquisition, which was completed on February 1, 2020.
“Our expectation is that over the course of this five years, even as we pursue the opportunity to grow the asset, that we ought to see positive cash flow in the short term,” said Rampersad.
He said the expectation is that the acquisition will generate positive cash flow within one year.
“In fact, from July of this year is when we expect this business to start generating positive cash flows back to PPGPL,” said the petrochemical executive.
He was speaking to Express Business on Monday, after Phoenix Park hosted what it called a milestone event labelled Going Global.
Rampersad described the transaction as “a good sized acquisition, an economically viable acquisition and the downside risk is low.
“Our expectation is that by this time next year, you ought to be talking about positive cash back to our shareholders in the form of US-dollar dividends that they will remit to PPGPL.”
PPGPL is 39 per cent owned by the local, publicly listed company TTNGL, with 61 per cent of the Phoenix Park being owned by the National Gas Company.
NGC’s chairman, Conrad Enill said the the structural shift that has taken place in the global natural gas market created some challenges for T&T.
One of those challenges is that the natural gas that NGC aggregates can no longer earn the revenues that the company has grown accustomed to receive.
“Faced with that challenge, you either do nothing or you look to see how you can expend into other areas to add value with what you have and what you know,” said Enill.
He said that that was the thinking that led PPGPL to look at other areas that could leverage its plant, people and expertise.
Twin Eagle is a company that PPGPL looked at after reviewing a number of other possible acquisition candidates.
“We felt that Twin Eagle allows us to increase our reach, broaden our market space and develop in a way that positions us to move beyond Trinidad and Tobago and into larger markets,” Enill said.
Rampersad described the acquisition as the first delivery on PPGPL’s commitment to go international.
He said: “We have looked at several opportunities over the past few years, but what we have done is acquire a business within our core competency.
“Secondly, the acquisition gives us access to product to expand existing markets and also bring natural gas liquids to our market.
“We have discussed before the issue of the product trading initiative, where the PPGPL assets can be used as a hub to enhance the trading of liquids.”
Rampersad explained that Twin Eagle is an entity that would allow PPGPL to source natural gas liquids on the North American market, as the company has 1 million barrels of storage at its Point Lisas Industrial Estate site.
The PPGPL president said the company is deepening its involvement in the trading of the commodity it produces, but doing so with “a very measured approach.”
Trading, as well, would give a company like PPGPL a fixed stream of income regardless of whether product prices at the Mont Belvieu benchmark are volatile.
Rampersad said: “Trading also opens up other aspects of our value chain. If you look at all of the large traders in the world, they are involved in not only trading of product, but also shipping and storage.”
He said with PPGPL acquiring a natural gas liquids trader in the US, and with its 1 million barrels of storage, the missing piece would be shipping.
“But you do it in stages and we have to be very measured because at the end of the day, how you measure risk would determine if you get the trading margin.”
Asked what is PPGPL’s appetite for future acquisitions, Rampersad said: “We have a mandate from our board to go further downstream. So with this acquisition, our intent is to start looking at storage, logistical and port assets.
“But also start looking at new markets.This entity markets product into the US and Mexico, but you look along the eastern seaboard of Latin America and there are big cooking gas markets.
“Once you can build a logistics model that is economic, that can open up new markets for you.”
That logistics model along with the existing PPGPL assets will be able to drive the company’s future, Rampersad said, noting that the existing assets are fully depreciated.