MIXED UPDATENegatives:
NATO is a total and complete execution disaster, they did not just raise the estimate to $350m to $360m but the new scope does not even take us to 10.5 trains per week, there is yet more construction (minor debottlenecking as they call it) to get us to 10.5 trains per week capacity. This is a fiasco beyond compare when you consider their original plan called for a budget of $190m to $225m and no we could be approaching $400m if minor debottlenecking is around $40m.
Positives:
New CEO:
Finally we have a new CEO, this is a much needed step, his chemical background indicates a re-focus on the their core business, I view this as a strong positive and it does signal that they will focus back on their bread and butter ,once NATO is completed and probably divested.
M&A in the works:
"Our impressive portfolio of assets has not gone unnoticed either and we will continue to advance discussions with those parties that have expressed a potential interest in certain assets." There is no assurance that a transaction, if pursued, will be concluded."
The above clearly state that they will precede with some asset sales, and I strongly believe that they are referring to NATO; my guess selling this asset is a priority at this stage. The press release referred several times to enhancing and unlocking shareholder value. It still makes tremendous sense for a midstream company, pipeline company or even one of our customers to buy NATO, all the major pipeline projects are dead in the water; terminal construction times lines and escalating construction costs in Alberta makes a greenfield project a risky proposal. A buyer here can hit the ground running and relatively quickly ramp up capacity (once the minor remaining debottlenecking is done). NATO is much larger than a bitumen transport site, it is a large condensate handling site and a large storage site as well, a key asset for the likes of Keyera, Enbridge, Gibsons, TransCanada, Cenovus .. etc, they are all loaded with cash and can afford to pay top dollars for a long term strategic asset.
Canexus value will be eventually unlocked, but we are probably talking $6 to $6.5 after all the dilution and miss-steps at NATO, only a high multiple M&A for NATO can compensate for those issues, I guess, we will know soon enough.
Regards,
Nawar