CIBC on NATODespite the lowered price target CIBC had an interesting overview of NATO’s potential
NATO Still Has Significant Unexplored Value Currently, we model NATO’s long-term run rate EBITDA at $60 million (assuming 10.5 unit trains per week); however, we believe Bruderheim’s value could be double that given other opportunities at the site. Despite significant delays and losing the first-mover advantage, we still believe the Bruderheim unit train operation represents a significant strategic value given its location, accessibility of the facility by both CP (CP-SP) and CN (CNR-SP) railways, and the potential for further expansion of EBITDA due to:
Location—Bruderheim is located at the crossroads of CNR and CP mainlines, and NE of Edmonton. Bruderheim may also become an important crude oil hub (albeit on a smaller scale) as Enbridge Northern Gateway is expected to originate from Bruderheim.
Pipeline Connectivity—There are currently a number of pipelines in operation and in development in the Bruderheim/Edmonton area. Corridor [Inter Pipeline (IPL.UN-SO)] has a capacity of 465,000 bpd, while the Polaris pipeline is a 120,000-bpd diluent line. The Rainbow pipeline [Plains Midstream Canada (PAA-NYSE)] has a capacity of 220,000 bpd. Trans Mountain [Kinder Morgan (KMI-NYSE)] currently transports 300,000 bpd, but expansion is under way to increase this to 850,000 bpd by 2017. Lastly, Enbridge (ENB-SO) is planning the Northern Gateway pipeline, which will have capacity of up to 525,000 bpd; however, development is currently held up due to political concerns. The Access pipeline has capacity of 70,000 bpd of diluent and 156,000 bpd of blended bitumen. Other proposed pipelines include Woodland, Woodside, Norlite and Cornerstone.
Availability of salt caverns for storage—Canexus owns 250 acres of land at NATO that could potentially be used to develop underground salt caverns for storage of crude or condensate. We estimate there is space for the two existing caverns and an additional 12 caverns.
Excess pipeline capacity into Bruderheim—Current pipeline capacity into Bruderheim is greater than 10-11 unit trains per week. We believe CUS could potentially expand its transload capacity to 14-15 unit trains per week.
Diluent Backhaul—Three pipelines have been sunk between Bruderheim and Stonefell terminal (water, bitumen and condensate/diluent pipelines). The opportunity remains for diluent backhaul at some point in the future.
Blending capabilities—Currently, blending capabilities for fracking fluid are not being utilized at Bruderheim.
MEG Diluent Stripping Plant—The new plant is expected to be completed by late 2015 (capex $75 million). The stripper plant will be able to remove diluent from the bitumen blend to be shipped by rail, which should help to improve the economics of rail transportation closer to pipeline. We believe that MEG Energy (MEG-TSX) building hard assets at Bruderheim means that MEG is likely to move more volume via this terminal.
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It is worth noting that both CIBC and TD still value NATO at $400m to $530m in their latest reports, thus any transaction for NATO will likely give us a debt free company, with a large potential to increase the dividend, buyback shares and expand its core chemical operations.
Regards,
Nawar