GREY:STPJF - Post by User
Comment by
rehsifylfon Apr 21, 2011 12:42pm
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Post# 18470249
RE: Cash Flow
RE: Cash FlowCouple of points on Cash Flow.
Disclosure - Long
The rise in oil prices in Q1 has not translated into a rise in the price of the bitumen at even close to a 1:1 ratio. So while WTI is sailing, bitumen was actually lower for a good part of Q1 than Q4. Production increases do obviously help though.
My concern regarding STP is that I've tried hard to understand how they can possibly complete the first plant and infrastructure at McKay for anywhere near what they have stated. Based on all of the information available regarding field construction, engineering, fab yard costs, indirects etc. that are being seen in the area right now, they should not be able to do it for that budget. If they can - while good for them, but not sure how they will. A problem with these projects is that in the end, they all get announced as "On Budget" when in reality virtually none of them are.
The announcement of the expansion is great but also makes me wonder how they will fund it. They plan start construction in Q2 2013 - about 2 years from now. Unlikley that they will be generating enough cash flow from Phase 1 and Senlac to cover the interest on Phase 1 costs and the development. They would need to have cash in place for long leads before construction started. Not sure where this will come from - more debt or more equity.
I have confidence in the STP they have assembled, but as other juniors (and majors) that have tackled SAGD recently have found out, it is not like you flick a switch and you get to nameplate in a few weeks. It will takes quite some time from initial production to nameplate. At the same time,. a large amount of bitumen is coming on line, yet there is no incremental local upgrading capacity coming on line. There is some risk regarding the keystone Gulf Coast line, and without it, bitumen producers in Alberta will be subject to the kinds of price depression they are seeing now.
I'm bullish on STP - but perhaps not quite as bullish as I have been in the past for these reasons, and may move some money into other HO plays if it breaks $2 in the near term.