Incitec Pivot Ltd T.IPL

RE:Uncharted waters

[sclarda]

Rakaposhi wrote

I've been an IPL shareholder since 15 Dec '08 when I bought the first batch at $6.59. At some point a while ago, I received more dividends than my ACB. The 72% cut hurt but I don't see another good way out. The current environment is unprecedented. Those who are saying the CEO or BOD should go obviously have never ran a company. The world is complex, with massive competing influences. I would have been worried if the divvy stayed high and was subject to dilution, shorters etc. So they did the right thing, at an enormous personal cost. I got caught in the ALA cut as well a few years ago and that company truly was a shambles. That last conf call with the old CEO … what a joke “Oh, I guess we’ll have to sell another 2 billion of assets then…”
 
The thing to focus on here is that under the circumstances, they are doing a good job. They all took a cut along with the shareholders. No other company I’ve seen cut has done the same. Maybe save for HOT.UN, as the CEO only got paid in shares (and their now zero dividends). A big part of the future is Heartland. That will diversify IPL into another company. I would suspect at some point a name change will be in order as well. A good partner is also a good move.
 
The oil market will turn around, there is no viable alternative for at least 85% of the energy needs of the world, at least not in our lifetime. Or some company like General Fusion or some other outfit comes around with a miracle …
 
With Keystone XL approved (shovels in the ground today already apparently) and TMX proceeding to build, the world will look totally different for the oilsands and the related companies in a few years.
 
This whole Corona thing is scrwing with all sorts of metrics and issues so I’d pay not too much heed to it if you are looking 5 years out.

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Yes the world is complex and a lot of unexpected things will happen.  That being said IPL management by taking on the large $4 billion project on their own while keeping and increasing the dividend put this company in a situation where they needed everything to go as planned and the world economy to cooperate for several years as the project was being built. It should have been reasonably expected that over the several years of construction unexpected events would likely occur as they often do.

Better management would not have put the company in the risky situation that they did. If they wanted to do the project they should have taken on a partner at the beginning for at least a 25% share.  That would have given them $1 billion in cash.  Then they should have cut the dividend by one third at least 3 years ago which would have saved them aprox. $600 million in dividends. That cut would also have saved them another $400 million  in dividends over the next 2 years of construction.  By taking on a 25% partner at the beginning and cutting the dividends by one third they would have an extra $2 billion in cash over the construction period which would have payed for half the project.

If they could not find a partner at that time they should not have gone ahead with the project on their own as the company was to small to handle this big of a project on their own especially without cutting the dividend significantly. Even Pembina which has 3 times the cashflow of IPL took on a partner for their propane project.


Instead of doing a large project like they did which requires spending $4 billion over 5 years before any revenue is generated would it not have been better to do a smaller project of around $1.5 billion which would have only required around one third of the investment and would have been generating cashflow after a couple of years?

A project like that would have already been operating and bringing in cashflow which could help to pay for the next one.  Even better than building a smaller project would be to buy something already operating which would be generating cashflow right away and save the company all the hassles of building something from scratch. The recent purchase of more oil storage in Europe is a good example.

By taking a few much smaller steps than the one large one they did they would have had much less investment and risk and quicker cashflow generation not to mention avoiding the dillution of the DRIP and not having to make the large dividend cut they just did along with trying to find a partner for the propane project right when the world is in a huge crisis.

Better to take several small bites that you can chew on and digest than one big one that could choke you.